U.S Mortgages – Mortgage Rates Steady to Support a Jump in Applications

A recent fall in rates provided support to applications, while a slowdown in house price growth could offset any benefit from lower rates near-term.
Bob Mason
mortgage rates

There was little action in mortgage rates last week, with rates holding steady following the previous week’s largest fall since January 2015, 30-year fixed mortgage rates unchanged at 4.71% in the week ending 29th November.

According to the weekly report released by Freddie Mac, there was a jump in purchase mortgage applications in the week, reflecting continued strong demand in spite of higher mortgage rates than a year ago, with prospective home buyers fence sitting in search of the right time to buy.

A shift in the FED’s outlook towards monetary policy pinned back Treasury yields, with both FED vice chair Clarida and chair Powell talking of being close to monetary policy neutral.

The FOMC meeting minutes that were released on Thursday were taken as dovish and, while the FED may be unwilling to raise any material concerns over the U.S economy, a number of economic indicators have begun to sound the alarm bells, which could see prospective home buyers take more time to go into a housing market that is certainly past its peak.

Following a string of weak housing sector numbers in recent weeks, stats released over the last week provided some hope, though it wasn’t all bells and whistles.

New home sales tumbled by 8.9% in October, month-on-month, with the upward trend in mortgage rates through summer to early October contributing to the sharp pullback in demand, 30-year fixed having risen from an early June 4.54% to an early November high 4.94% before the previous week’s sharp decline.

The good news was that pending home sales got a boost in October, rising 2.6% in spite of the upward trend in rates, though the numbers will be of little comfort for a market that has seen the pace of house price growth ease back in recent months, the S&P / Case Shiller HPI Composite – 20 rising by 5.1% year-on-year in September, marking quite a slowdown when comparing to 6.8% back in the first quarter of this year, the latest rise the softest since a 5% increase in October 2016.

With the overall index being propped up by pockets primarily on the West Coast, it may not be long before the extent of the slowdown in house prices is truly felt. While prospective home buyers have been sitting on the fence waiting for mortgage rates to stabilize, we could see demand fall further as prospective home buyers sit back in hope of a correction in the property market and those opting to rent will be doing so with the knowledge that the rental market has skewed in favour of tenants of late, with rents on the decline.

Freddie Mac weekly average rates for new mortgages as of 29th November were quoted to be:

  • 30-year fixed rate loan remained unchanged at 4.81% in the week, while up from 3.90% a year ago. The average fee rose from 0.4 points to 0.5 points.
  • 15-year fixed rates rose from 4.24% to 4.25% in the week, while up from 3.30% from a year ago. The average fee fell from 0.5 points to 0.4 points.
  • 5-year fixed rates increased from 4.09% to 4.12% in the week, while up from last year’s 3.32%. The average fee held steady at 0.3 points.

Mortgage Bankers’ Association Rates for the week ending 23rd November were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, increased from 5.08% to 5.11%, with points with points remaining unchanged at 0.63 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances decreased from 5.16 to 5.12, with points easing from 0.48 to 0.46 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances remained unchanged at 4.88%, with points rising from 0.29 to 0.31 (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, increased by 5.5% in the week ending 23rd November, following on from the previous week’s 0.1% fall, week-on-week.

The Refinance Index rose by 1%, in the week ending 23rd November partially reversing the previous week’s 5% fall, with the share of refinance mortgages falling from 38.5% to 37.9%, marking a second consecutive weekly decline in the share of applications.

For the week ahead, we can expect the markets to respond to news from the G20 Summit that concluded on Saturday, news from the G20 Summit of a planned truce and agreement to hold off on 1st January tariffs expected to provide some relief that could spur a jump in Treasury yields and ultimately mortgage rates.

Economic data is also on the heavier side, key stats including November’s private sector PMI numbers, the November ADP employment change numbers and of greater significance, FED Chair Powell’s testimony to Congress that could get hot under the collar following Trump’s dismay towards the recently appointed FED Chair.

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