U.S Mortgages Ease Back for Now

Mortgage rates eased back, following two consecutive weeks of gains, in the week ending 9^th August, the pullback in mortgage rates only minor however, with rates sitting not far off May’s highs for the year, according to figures released by Freddie Mac.

Following softer inflation figures for June and the 2^nd quarter, according to the core price index figures released in recent weeks, July consumer price index figures showed a pickup in the annual rate of inflation to 2.4% and, while the numbers were released following the Freddie Mac and MBA numbers, suggestions of a possible 2 further rate hikes this year by FOMC member Evans, coupled with the pickup in inflation, may well support the upward trend seen through much of the year.

The partial reversal of the previous two weeks of gains will have given some respite to prospective home owners at just the right time, with May’s jump in housing starts supporting a pickup in inventories for the month, while the reality remains that prospective home owners are likely to continue feeling the pinch, with rising mortgage rates and consumer prices together with near-term inventory constraints that have supported the upward trend in house prices.

While affordability is expected to begin to influence the upward trend in house prices, wage growth will need to begin to accelerate to keep up with or even surpass the pace of rising consumer prices to ease pressure on households and prospective households to support the demand side.

For now, the good news is that there have been few signs of a slowdown in economic growth as a result of the ongoing trade spat between the U.S and China, though fresh tariffs are on the way that could lead to an acceleration in the cost of goods.

Economic data through the last week was on the lighter side, with stats through to Thursday being limited to June’s JOLT’s job openings, the weekly jobless claims and July wholesale price inflation numbers. Following the softer than anticipated nonfarm payroll figures for July, June job openings were relatively steady, with weekly jobless claims on the decline, while wholesale price pressures eased, all of which were supportive of a pullback in mortgage rates through the week.

Freddie Mac weekly average rates for new mortgages as of 9^th August were quoted to be:

• 30-year fixed rate loan decreased from 4.60% to 4.59% in the week, while up from 3.90% a year ago.
• 15-year fixed rates fell from 4.08% to 4.05% in the week, while up from 3.18% from a year ago.
• 5-year fixed rates decreased from 3.93% to 3.90% the week, while up from last year’s 3.14%.

Mortgage Bankers’ Association Rates for the week ending 4^th August were quoted to be:

• Average interest rates for 30-year fixed, backed by the FHA, increased from 4.78% to 4.83%.
• Average interest rates for 30-year fixed with conforming loan balances remained unchanged a 4.84%.
• Average 30-year rates for jumbo loan balances decreased from 4.76% to 4.74%.

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 3.0%, following on from the previous week’s 2.6% fall, week-on-week.

The Refinance Index decreased by 5% in the week ending 4^th August, following the previous week’s 2% fall with the share of refinance mortgages hitting its lowest level since December 2000, with the refinance share of mortgages falling from 37.1% to 36.6%, reversing the previous week’s rise.

The MBA’s Builder Applications Survey (BAS) July report showed that applications for new home purchases rose by 3.6% year-on-year, while up just 0.2% month-on-month.

The MBA also estimated that new single-family home sales hit 637,000 in July, the strongest pace of sales since April 2018, with a jump in housing starts back in May supporting the uptick, while the pickup in sales also provided further evidence of the strength of the economy and labour market conditions.

For the week ahead, key stats that will likely influence 10-year Treasury yields and ultimately mortgage rates, include July retail sales figures and 2^nd quarter nonfarm productivity and unit labour costs numbers, while industrial production and manufacturing data will also have an impact, the markets being more sensitive because of the talk of more tariffs being rolled out before the end of the month.

Of interest will be Thursday’s scheduled release of housing starts and building permits, with both forecasted to rise in July, which would ease some inventory pressures in the final quarter.

Outside of the stats, geo-political risk will likely garner significantly more attention, with a jump in demand for U.S Treasuries at the end of the week seeing 10-year yields ease back to 2.87%, any further fall in yields expected to support another decline in mortgage rates in the week ahead.