U.S Mortgages – Rates Down Again, With More to Come IF the FED Turns

Mortgage rates fell to levels not seen since September, with concerns over the economic outlook hitting the equity markets and Treasury Yields.
Bob Mason
Home For Sale Real Estate Sign and House

Mortgage rates fell once more in the week ending 13th December, with 30-year fixed falling by 0.12 percentage points to a 3-month low 4.63%.

The fall in 30-year fixed to 4.63%, the lowest level since 12th September’s 4.60%, comes off the back of 5 consecutive weeks of either flat or falling mortgage rates and it couldn’t come at a better time for the housing sector. While wage growth may be a laggard to house price growth, tight labour market conditions, a softening in the housing sector and falling rates will give some much needed support through the low period.

A slide in U.S Treasuries drove mortgage rates south, driven by risk aversion, with economic data adding to the market angst over the economic outlook, yields falling in spite of an anticipated rate hike by the FED next week. Investors are expecting the FED to scale back its number of hikes for next year, economic indicators out of Asia, Europe and the U.S all raising red flags as the U.S – China trade war continues.

Freddie Mac weekly average rates for new mortgages as of 13th December were quoted to be:

  • 30-year fixed rate loan remained fell from 4.75% to 4.63% in the week, while up from 3.93% a year ago. The average fee remained unchanged at 0.5 points.
  • 15-year fixed rates fell from 4.21% to 4.07% in the week, while up from 3.36% from a year ago. The average fee rose from 0.4 points to 0.5 points.
  • 5-year fixed rates decreased from 4.07% to 4.04% in the week, while up from last year’s 3.36%. The average fee held steady at 0.3 points.

Mortgage Bankers’ Association Rates for the week ending 7th December were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, decreased from 5.05% to 4.97%, the lowest level since Sept-18, with points decreasing from 0.62 to 0.55 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances decreased from 5.08 to 4.96 the lowest level since Sept-18, with points rising from 0.44 to 0.48 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances decreased from 4.89% to 4.80%, the lowest level since Sept-18, with points rising from 0.30 to 0.33 (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 1.6% in the week ending 7th December, following on from the previous week’s 2% rise, week-on-week.

The Refinance Index rose by 2%, in the week ending 7th December partially following on from the previous week’s 6% rise, with the share of refinance mortgages increasing from 40.4% to 41.5%, the highest share of applications since March 2018.

The MBA noted that rates fell across the board alongside U.S Treasury yields, with trade fears continuing to plague the global financial markets, exasperated by the latest widening in the U.S trade deficit.

Alongside falling rates, applications were on the rise, with purchase activity also on the up by more than 3% year-on-year.

The Mortgage Bankers’ Association released its quarterly mortgage debt figures for the 3rd quarter:

  • Total commercial / multifamily mortgage debt outstanding increased by $45.4bn (+1.4%) in the 3rd quarter to an all-time high.
  • Multifamily mortgage debt increased $26.1bn (2%) to $1.3tn, with total commercial / multifamily debt hitting $3.32tn.
  • The continued rise in multifamily debt was attributed to Fannie Mae, Freddie Mac and FHA mortgages.
  • Commercial banks hold the largest share of commercial / multifamily mortgages at $1.3tn (40%).

The Mortgage Bankers’ Association also released November’s new home purchase mortgage applications:

  • Mortgage applications for new homes purchased fell by 11% year-on-year and by 14% month-on-month in November.
  • The MBA estimates that new home sales fell by 7% in November and down by 5% compared with November 2017.
  • Falling new home sales was attributed to affordability, with wage growth lagging behind house-price growth.
  • Adding to the weakness in November was stock market volatility and some degree of uncertainty over the economy.

For the week ahead, focus will be on the FED and of greatest significance, the FOMC’s economic projections and FED Chair Powell press conference late on Wednesday. Prospective home buyers could get more relief on mortgage rates should the FED acknowledge that economic headwinds are beginning to form, with the FOMC doves likely to skew the projections in their favour for 2019.

On the data front, November housing sector data due out through the first half of the week will be of interest, with building permits, housing starts and existing home sales figures due out. It could be quite a turnaround for those who held back from jumping onto the property ladder earlier in the year as mortgage rates began to rise…

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