U.S Mortgages – Rates and Applications Slide AgainMortgage rates were down again, but that could be the end should trade talks progress and service sector PMI numbers out of the U.S impress.
Mortgage rates continued to fall in the week ending 3rd January 2019, with 30-year fixed rates falling to 4.51%, hitting levels not seen since 22nd August 2018.
The decline marked an 8th consecutive week of flat or weekly declines
With a shortened week due to the New Year holidays, economic data out of the U.S was on the lighter side, key stats limited to December manufacturing PMI numbers, the weekly initial jobless claims figures and December’s ADP nonfarm employment change numbers.
While the ADP employment change number impressed, manufacturing PMI numbers weighed on market risk sentiment through the week, the market’s preferred ISM Manufacturing PMI sliding from 59.3 to 54.1 in December, raising more alarm bells over the global economic outlook.
Adding downward pressure on Treasury yields was a particularly volatile holiday period in the global financial markets, with a flash crash on Thursday in the FX world seeing the Japanese Yen surge to ¥104 levels before easing back to ¥107 levels.
Weak economic data out of China also drove demand for U.S Treasuries, contributing to the fall in yields, China’s manufacturing PMI contracting in December as the effects of the U.S – China trade war became more apparent at the end of the 4th quarter.
In the U.S equity markets, the Dow was down 1.63% through to Thursday’s close, with the U.S government shut down providing little support.
With 2018 all wrapped up and what eventually became the worse year for the equity markets since 2008, the slide in mortgage rates and slowdown in house price growth, in some areas reversal, may not be enough to save a housing market in dire need of a boost following last year’s mortgage rate surge through to mid-November.
We can expect U.S Treasury yields to become all the more sensitive to economic data in the coming weeks, with housing sector data to also influence, any material slowdown in the housing sector likely to weigh heavily on the U.S economy.
Freddie Mac weekly average rates for new mortgages as of 3rd January were quoted to be:
- 30-year fixed rate loan fell from 4.55% to 4.51% in the week, while up from 3.95% a year ago. The average fee held steady at 0.5 points.
- 15-year fixed rates fell from 4.01% to 3.99% in the week, while up from 3.38% from a year ago. The average fee remained unchanged at 0.4 points.
- 5-year fixed rates decreased from 4.00% to 3.98% in the week and up 0.53% from last year’s 3.45%. The average fee eased from 0.3 points to 0.2 points.
Mortgage Bankers’ Association Rates for the week ending 28th December were quoted to be:
- Average interest rates for 30-year fixed, backed by the FHA, decreased from 4.91% to 4.86%, with points decreasing from 0.57 to 0.54 (incl. origination fee) for 80% LTV loans.
- Average interest rates for 30-year fixed with conforming loan balances decreased from 4.86 to 4.84, with points decreasing from 0.47 to 0.42 (incl. origination fee) for 80% LTV loans.
- Average 30-year rates for jumbo loan balances increased from 4.59% to 4.72%, with points rising from 0.28 to 0.30 (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, slid by 9.8% over 2-weeks ending 27th December, following on from a 5.8% week-on-week slide in the week ending 14th December.
The Refinance Index fell by 12%, in the week ending 27th December, following on from a 2% week-on-week fall in the week ending 14th December.
The share of refinance mortgages decreased from 43.6% to 42.7%, week-on-week in the week ending 28th December, partially reversing the week of 14th’s increase from 41.5% to 43.5%.
According to the MBA, mortgage applications fell over the past 2-weeks, in spite of 30-year fixed rates continuing to fall, as investors continued to favour U.S Treasuries amid concerns over the U.S and global economic outlook and the extended U.S government shut-down.
For the week ahead, much will depend on the data through the week, following Friday’s labour market figures out of the U.S and FED Chair Powell’s relatively dovish stance on monetary policy. The Dow Jones rallied by more than 700 points to reverse the losses through Thursday, with 10-year Treasury yields seeing their largest single day gain since November 2016.
Positive economic data through the week coupled with a freshly dovish FED Chair could ultimately see mortgage rates take a step northwards for the first time since the week ending 31st October 2018, the last time that 30-year fixed rates rose.
Key stats through the week include December service sector PMI and November factory orders and November trade data, though risk sentiment and the direction of Treasury yields may ultimately be in the hands of trade talks between the U.S and China.