U.S Mortgages – Rates Fall Again, while Applications Rebound

Bob Mason
Upscale modern house for sale

Mortgage rates fell for a 3rd consecutive week in the week ending 21st February. 30-year fixed rates decreased by 2 basis points to 4.35%, the lowest level in over 12-months, according to figures released by Freddie Mac.

The downward trend in mortgage rates has continued since mid-November, with mortgage rates now at levels not seen since the 1st week of February of last year. 30-year fixed rates have fallen by 59 basis points since mid-November of last year’s most recent peak.

The continued downward trend came off the back of continued concerns over the global economic outlook. In spite of the FED’s relatively upbeat outlook on growth, economic indicators have raised a number of red flags.

Ongoing U.S – China trade talks have contributed to the downward trend in Treasury yields, with a number of central banks shifting to more dovish sentiment towards policy also providing support for U.S Treasuries.

While the FOMC meeting minutes revealed a relatively positive outlook on the U.S economy’s growth prospects, the combined effect of an anticipated pause in rate hikes and a slowing in the pace of reducing bonds held pinned back yields on Wednesday.

For the real estate sector and prospective home buyers, the downward trend in mortgage rates certainly supports a rosy outlook for the spring. However, one issue that may peg back buyers could be a material shift in labor market conditions.

There’s yet to be any evidence of a material shift, however. The weekly jobless claims figures eased back following a rise in recent weeks. Recent nonfarm payrolls also impressed and, with service sector activity picking up in February, labor market conditions are expected to remain robust near-term. Service sector activity accounts for around 80% of the U.S economy.

Economic Data from the Week

Other stats released through the included Philly FED’s Manufacturing PMI, prelim U.S manufacturing PMI, durable goods orders and existing home sales figures.

With the exception of a pickup in service sector activity, the stats were skewed to the negative on Thursday. Manufacturing sector activity slowed, the Philly FED manufacturing PMI reflected a contraction and the Goods Orders Non-Defence Ex-Air also fell.

Mortgage rates could ease further back once trade talks are concluded should economic indicators continue to weaken. For the week ahead, expectations of an agreement between the two sides. If there is no agreement, an extension to talks may be forthcoming.

Freddie Mac Rates

The weekly average rates for new mortgages as of 21st February were quoted by Freddie Mac to be:

  • 30-year fixed rates fell by 2 basis points to 4.35% in the week. Rates were down from 4.40% from a year ago. The average fee increased from 0.4 points to 0.5 points.
  • 15-year fixed rates fell by 3 basis points to 3.78% in the week. Rates were down from 3.85% from a year ago. The average fee remained unchanged at 0.4 points.
  • 5-year fixed rates also fell by 4 basis points to 3.84% in the week. Rates increased by 19 basis points from last year’s 3.65%. The average fee held steady at 0.3 points.

Mortgage Bankers’ Association Rates

For the week ending 15th February, rates were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, increased from 4.61% to 4.68%. Points increased from 0.53 to 0.58 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances increased from 4.65% to 4.66%. Points decreased from 0.43 to 0.42 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances increased from 4.48% to 4.56%. Points decreased from 0.27 to 0.23 (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, rose by 3.6% in the week ending 15th February. The increase reversed a 3.7% fall from the previous week.

The Refinance Index jumped by 6% in the week ending 15th February. The rise follows a 0.1% decline from the previous week.

The share of refinance mortgages decreased from 41.8% to 41.7%.

According to the MBA, mixed economic data left mortgage rates steady. While inflation held firm, retail sales disappointed, which contributed to the rising concerns over the economic outlook.

For the week ahead

Economic data through the week include consumer confidence, factory orders and 4th quarter GDP numbers through to Thursday. Any soft numbers will add further downward pressure on yields and mortgage rates through the week.

From the real estate sector, there is a string of data to consider. Building permits, housing starts and pending home sales numbers released through the week. The stats will provide some indication on whether the downward trend in mortgage rates has had any impact at the turn of the year.

Outside the numbers, FED Chair Powell will give his testimony to lawmakers, which will be closely watched. Any concerns over the economic outlook and expect Treasury yields to head south over the 2-days of testimony that starts on Tuesday.

Elsewhere, Trump’s meeting with North Korean leader Kim Jong Un, Brexit, and progress on the extended U.S – China trade talks will also influence.

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