U.S Mortgages – Rates Fall for a 5th Consecutive Week

Mortgage rates fell for a 5^th consecutive week in the week ending 30^th May. 30-year fixed rates fell by 7 basis points following on from a 1 basis point fall from the previous week. The 7 basis point fall took 30-year rates to 3.99% according to figures released by Freddie Mac.

Following the weekly fall, 30-year fixed rates stood 57 basis points below levels from 12-months ago.

More significantly, 30-year fixed rates have fallen by 95 basis points since last November’s most recent peak of 4.94%.

Economic Data from the Week

Economic data through the first half of the week was on the lighter side. May consumer confidence and April house price figures provided direction.

While house price growth slowed further in April, with prices rising by 2.7% year-on-year, following a 3% March, consumer confidence jumped in May.

In spite of the boost in consumer confidence, suggesting strong consumer spending in the months ahead, market risk aversion plagued in the week.

Trade war chatter and growing concerns over the global economic outlook led to a pullback in U.S Treasury yields on the week.

On Friday, the 3-month – 10-year yield spread slid to -22 following a slide in 10-year yields to 2.12% off the back of news of new tariffs targeting Mexico.

Previous week data out of the U.S set a bearish mood going into the week, with disappointing durable goods orders and private sector PMI numbers weighing.

From the housing sector, in spite of the downward trend in mortgage rates this year, home sales disappointed in April.

New home sales slumped by 6.9%, with existing home sales and pending home sales falling by –0.4% and by 1.5% respectively.

Freddie Mac Rates

The weekly average rates for new mortgages as of 30^th May were quoted by Freddie Mac to be:

• 30-year fixed rates fell by 7 basis points to 3.99% in the week. Rates were down from 4.56% from a year ago. The average fee held steady at 0.5 points.

• 15-year fixed rates slipped by 5 basis points to 3.46% in the week. Rates were down from 4.06% from a year ago. The average fee increased from 0.4 points to 0.5 points.

• 5-year fixed rates fell by 8 basis points to 3.60% in the week. Rates decreased by 20 basis points from last year’s 3.80%. The average fee held steady at 0.4 points.

According to Freddie Mac, concerns over the effects of the ongoing trade war on the U.S and global economy weighed on risk sentiment. The downward trend in mortgage rates is expected to support the housing market.

Mortgage Bankers’ Association Rates

For the week ending 24^th May, rates were quoted to be:

• Average interest rates for 30-year fixed, backed by the FHA, decreased from 4.34% to 4.33%. Points decreased from 0.47 to 0.43 (incl. origination fee) for 80% LTV loans.
• Average interest rates for 30-year fixed with conforming loan balances held steady at 4.33%. Points decreased from 0.43 to 0.42 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances decreased from 4.24% to 4.18%. Points decreased from 0.35 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, decreased by 3.3% in the week ending 24^th May. The decrease reversed a 2.4% rise in the week ending 17^th May.

The Refinance Index decreased by 6% in the week ending 24^th May. The Index had increased by 8% in the previous week ending 17^th May.

The share of refinance mortgage activity decreased from 40.5% to 39.7%, following an increase from 37.9% to 40.5% in the week prior.

According to the MBA, concerns over the European economy and uncertainty about the U.S – China trade war pinned mortgage rates back in the week.

In spite of the pullback in mortgage rates, purchase applications fell for a 3^rd consecutive week, while continuing to sit more than 7% up year-on-year.

For the week ahead

It’s a busy first half of the week. May private-sector PMI numbers are due out on Monday and Wednesday. Following durable goods orders and factory order numbers on Tuesday, ADP nonfarm employment change figures on Wednesday will also influence.

We can expect yields to be particularly sensitive to the market’s preferred ISM survey results. With the U.S yield curve inverting last week, any weakness in the numbers will trigger further risk aversion.

From outside of the U.S, China’s manufacturing PMI on Monday will also test market risk appetite at the start of the week.

While the stats will influence, trade war chatter will continue to be the key driver throughout the week.

Trump just threatened Mexico with tariffs, in spite of the ink yet to dry on the USMCA. How Mexico responds and whether more trade partners are added to the list will be key.

The markets will also be watching closely to see what’s next from Beijing, with China seemingly intent to allow the trade war to run its course.