U.S Mortgages – Down for a 3rd Week in a Row as Trade War Jitters Lingered

Trade war jitters and soft retail sales figures pinned mortgage rates back in the week. Expect sentiment towards trade to continue to influence.
Bob Mason
For sale sign in front of large USA home

Mortgage rates slipped again in the week ending 16th May. 30-year fixed rates fell by 3 basis points following on from a 4 basis point rise from the previous week. The 3 basis point fall took 30-year rates to 4.07% according to figures released by Freddie Mac.

Following the weekly fall, 30-year fixed rates stood 54 basis points below levels from 12-months ago.

More significantly, 30-year fixed rates have fallen by 87 basis points since last November’s most recent peak of 4.94%.

Economic Data from the Week

Economic data released out of the U.S through the first of the week was on the lighter side. April retail sales, industrial production, and NY Empire State Manufacturing figures provided direction.

Weaker than forecast retail sales figures weighed on the Dollar and U.S Treasury yields on Wednesday, supporting the decline in mortgage rates.

Adding to the increase in demand for U.S Treasuries was rising concern over the ongoing U.S – China trade war.

Talks ended without an agreement and China retaliated to the U.S tariff hike by introducing tariffs on $60bn worth of U.S goods.

From outside of the U.S,

Economic data out of China was also weighed and reflected the effects of the extended trade war. Industrial production grew by just 5.4%, year-on-year, in April, coming up well short of a forecasted 6.5%. In March, industrial production had increased by 8.5%. Retail sales also softened over the month. Retail sales rose by 7.2%, easing back from 8.7% in March. Forecasts were for an 8.6% rise, year-on-year.

Freddie Mac Rates

The weekly average rates for new mortgages as of 16th May were quoted by Freddie Mac to be:

  • 30-year fixed rates fell by 3 basis points to 4.07% in the week. Rates were down from 4.61% from a year ago. The average fee held steady at 0.5 points.
  • 15-year fixed rates slipped by 4 basis points to 3.53% in the week. Rates were down from 4.08% from a year ago. The average fee remained unchanged at 0.4 points.
  • 5-year fixed rates increased by 3 basis points to 3.66% in the week. Rates decreased by 16 basis points from last year’s 3.82%. The average fee held steady at 0.4 points.

According to Freddie Mac, weaker consumer spending and manufacturing data, along with continued jitters around trade policy led to a pullback in interest rates.

In spite of economic indicators raising warning signals, sentiment towards the economy and a solid labor market are expected to support home sales this summer.

Mortgage Bankers’ Association Rates

For the week ending 10th May, rates were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, decreased from 4.44% to 4.32%. Points decreased from 0.56 to 0.49 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances decreased from 4.41% to 4.40%. Points decreased from 0.47 to 0.40 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances decreased from 4.27% to 4.24%. Points remained increased from 0.23 to 0.27 (incl. origination fee) for 80% LTV loans.

Weekly figures released by the Mortgage Bankers Association showed that the Market Composite Index, which is a measure of mortgage loan application volume, slipped by 0.6% in the week ending 10th May. The decrease partially reversed a 2.7% increase in the week ending 3rd May.

The Refinance Index decreased by 1% in the week ending 10th May. The Index had increased by 4% in the previous week ending 3rd May.

The share of refinance remained unchanged at 37.9% following a decrease from 38.8% to 37.9% in the week prior.

According to the MBA, while purchase applications eased slightly, they remained almost 7% higher than a year ago. The MBA also noted that increased anxiety from ongoing trade disputes could cause potential buyers to put off home searches near-term.

Earlier in the week, the Mortgage Bankers Association released mortgage delinquency figures for the 1st quarter. According to the latest National Delinquency Survey,

  • The delinquency rate for mortgage loans on 1-4 unit residential properties increased to 4.42% of all outstanding loans.
  • While up by 36 basis points, quarter-on-quarter, the delinquency rate was down 21 basis points, year-on-year.
  • Year-on-year, the percentage of loans on which foreclosure actions were commenced fell by 5 basis points in the 1st quarter and by 2 basis points, quarter on quarter.
  • In spite of the increase, it was the 3rd lowest delinquency rate in the last 12-years.

For the week ahead

It’s a particularly quiet week ahead. April existing home sales are due in the first half of the week.

We expect the figures to have a muted impact on yields, with the focus being on the FOMC meeting minutes due out on Wednesday.

The FED has hit pause and FED Chair Powell sees no reason to consider resume rate hikes anytime soon. This week’s minutes are unlikely to deliver too many surprises…

With FED monetary policy in mind, FED Chair Powell is due to speak on Tuesday. Any dovish chatter would support another weekly fall in mortgage rates, assuming there is no resolution to the trade war.

All things considered, sentiment towards the extended trade war will continue to be the key driver in the week.

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