U.S Mortgages – Down to 12-Month Lows, as Applications Slide

Mortgage rates were down again, but with applications also on the slide, questions over the housing sector remain.
Bob Mason
U.S Home Sales
For sale sign in front of large USA home

Mortgage rates fell for a 2nd consecutive week in the week ending 14th February. 30-year fixed rates decreased by 4 percentage points to 4.37%, the lowest in 12-months, according to figures released by Freddie Mac.

The downward trend in mortgage rates continued since mid-November, with mortgage rates now at levels not seen since early February of last year. 30-year fixed rates have fallen by 54 percentage points in just 3-months.

The downward move through the week was attributed to disappointing economic data out of the U.S, including softer inflation figures for January. In spite of the softer inflation and particularly disappointing economic data through the week, labor market conditions remain solid, which gives continued hope of a soft landing in the property market. The proof will be in the pudding, with this year’s home buying season likely to be considered a true litmus test of sentiment towards the economic outlook.

Economic Data from the Week

Economic data released through the week included January inflation figures, December retail sales numbers, and the weekly jobless claims figures. Particularly disappointing retail sales figures were of greatest concern. While January inflation figures were mixed, expectations of softer inflation also weighed, with the annual rate of core inflation having held steady at 2.2% at the start of the year.

Outside of the stats, more dovish central bank commentary, concerns over trade talks between the U.S and China and Brexit provided further support U.S Treasuries in the week.

Freddie Mac Rates

The weekly average rates for new mortgages as of 14th February were quoted by Freddie Mac to be:

  • 30-year fixed rates fell by 4pp to 4.37% in the week. Rates were down from 4.38% from a year ago. The average fee remained unchanged at 0.4 points.
  • 15-year fixed rates fell by 3pp to 3.81% in the week. Rates were down from 3.84% from a year ago. The average fee remained unchanged at 0.4 points.
  • 5-year fixed rates also fell by 3pp to 3.88% in the week. Rates increased by 25pp from last year’s 3.63%. The average fee held steady at 0.3 points.

Mortgage Bankers’ Association Rates

For the week ending 8th February, rates were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, decreased from 4.70% to 4.61%. Points decreased from 0.57 to 0.53 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances decreased from 4.69% to 4.65%. Points decreased from 0.45 to 0.43 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances decreased from 4.50% to 4.48%. Points decreased from 0.28 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, fell by 3.7% in the week ending 8th February. The decline comes off the back of the previous week’s 2.5% fall.

The Refinance Index fell by 0.1% in the week ending 8th February. The rise follows a 0.3% increase from the previous week.

The share of refinance mortgages increased from 41.6% to 43.2%. The increase reversed the previous week’s decrease from 42.0% to 41.6%.

According to the MBA, renewed uncertainty about the domestic and global economy was attributed to the fall in applications that coincided with a continued decline in mortgage rates. In spite of the recent trend, the MBA expects strength from the labor market and lower rates to support a pickup in purchasing activity in the months ahead.

The MBA also released its MBA Builder Application Survey for January and 4th quarter National Delinquency Survey results.

According to the MBA’s January Builder Application Survey,

  • Mortgage applications for new home purchases remained unchanged from a year ago, in January.
  • Compared to December 2018, applications increased by 43%.
  • Following a disappointing November and December, new home sales jumped by almost 30% in January, the fastest pace since the survey began in 2013.

According to the MBA’s 4th quarter National Delinquency Survey,

  • The delinquency rate for mortgage loans on 1-4 unit residential properties fell to a seasonally adjusted 4.06%.
  • The rate was down by 41 basis points from the 3rd quarter and by 111 basis points from a year ago.
  • In contrast, the percentage of loans on which foreclosure actions commenced in the 4th quarter increased by 2 basis points to 0.25%.
  • The overall national mortgage delinquency rate was at its lowest level since the 1st quarter of 2000.

For the week ahead

Economic data through the week is limited to a mass release of stats on Thursday, which includes private-sector PMI numbers, durable goods orders, weekly jobless claims numbers and January existing home sales.

Following a pickup in consumer confidence figures in February, according to figures released last Friday, a sustained rally in the U.S equity markets through the week could ease the downward trend in mortgage rates in the coming week. One hurdle could be the release of the FOMC meeting minutes on Wednesday, which could peg back yields mid-week ahead of Thursday’s data deluge.

We will expect that sentiment towards the global economy and U.S – China trade talks to ultimately have the last say on U.S Treasury yields. Talks between the U.S and China are set to resume in the week ahead following a failure to reach an agreement last week.

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