U.S Mortgages – Down for a 3rd Consecutive Week

Mortgage rates slipped again in the week ending 23^rd August, with a 3^rd consecutive week of decline seeing mortgage rates fall to levels not seen since April, according to figures released by Freddie Mac.

Economic data released through the week was on the lighter side, with key stats through to Thursday including July existing home and new home sales, together with August prelim private sector PMI numbers, with the FOMC monetary policy meeting minutes also there to influence the direction of Treasury yields through the week.

Weaker than expected private sector PMI numbers continued to raise concerns over the effects of the ongoing trade war with China, with trade talks between the U.S and China on Wednesday and Thursday making little progress to spur a sell-off in U.S Treasuries to drive mortgage rates northwards.

Downward pressure on Treasury yields also came from concerns over President Trump being implicated in the ongoing investigations into the U.S Presidential Campaign and possible collusion with the Russians.

While the FOMC meeting minutes continued to signal a September rate hike, concerns over the ongoing trade war and the need to monitor incoming data ahead of the September meeting also led to increased demand for U.S Treasuries, providing further respite to prospective home buyers.

Of greater concern however will be recent figures from the housing sector, with last week’s existing home sales and new home sales numbers continuing to fall in July, new home sales sliding by 1.7% month-on-month, following a 2.4% fall in June. Existing home sales were down 0.7%, following a 0.6% fall in June, with inventories and affordability contributing to the downward trend.

Freddie Mac weekly average rates for new mortgages as of 23^rd August were quoted to be:

• 30-year fixed rate loan decreased from 4.53% to 4.51% in the week, while up from 3.86% a year ago. The average fee remained unchanged at 0.5 points.
• 15-year fixed rates fell from 4.01% to 3.98% in the week, while up from 3.16% from a year ago. The average fee remained unchanged at 0.5 points.
• 5-year fixed rates decreased from 3.87% to 3.82% the week, while up from last year’s 3.17%. The average fee eased from 0.4 points to 0.3 points.

Mortgage Bankers’ Association Rates for the week ending 17^th August were quoted to be:

• Average interest rates for 30-year fixed, backed by the FHA, increased from 4.77% to 4.82%.
• Average interest rates for 30-year fixed with conforming loan balances remained unchanged at 4.81%.
• Average 30-year rates for jumbo loan balances decreased from 4.73% to 4.68%.

Weekly figures released by the Mortgage bankers Association showed that the Market Composite Index, which is a measure of mortgage loan application volume, rose by 4.2%, more than reversing the previous week’s 2.0% fall, week-on-week.

The Refinance Index increased by 6% in the week ending 17^th August, after having held steady the previous week, with the share of refinance mortgages rising from 37.6% to 38.7%, marking a 2^nd consecutive increase in share of total mortgages.

The Mortgage Bankers Association also released its quarterly Survey of Commercial / Multifamily Mortgage Bankers Originations for the 2^nd quarter of 2018.

• 2^nd quarter 2018 commercial and multifamily loan originations were 4% higher than during the 2^nd quarter of 2017 and 32% higher than in the 1^st quarter of 2018.
• Investor demand for multifamily properties and hotels were attributed to the rise in originations.
• Year-on-year, loans for hotel properties increased by 22%, with loans for multifamily properties rising by 17%, in Dollar terms.
• Quarter-on-quarter, originations for hotel properties surged by 89%, with originations for multifamily properties rising by 25%. Originations for retail properties rose by 87% and by 36% for office properties.

For the week ahead, there may be further respite following FED Chair Powell’s speech from Jackson Hole on Friday, where the emphasis was on gradual rate hikes, while highlighting the risks of moving too quickly and slowing the economy.

On the data front, key stats for the week ahead include August consumer confidence figures on Tuesday, 2^nd estimate GDP numbers and pending home sales on Wednesday and the FED’s preferred Core PCE Price Index figures along with personal spending numbers on Thursday.

For those looking for a new home, the downward trend in mortgage rates may be providing some respite, though with inventories continuing to be a major obstacle, a continued slide in housing sales may raise concerns of a price correction that could see a shift in the balance between inventories and demand. Mortgage rates may be at 4-month lows, but rushing in to buy a property, likely priced at the high end of the affordability scale, may not be so wise should rising concerns over the sector lead to a price correction.

As things stand, strong labour market conditions should continue to support demand, though sales will need to improve to restore confidence and that needs more inventories.