U.S Mortgages – Rates Hit Reverse with Interest

Mortgage rates hit reverse last week and could see a further downside if the FED delivers a hawkish outlook on Wednesday.
Bob Mason
For sale sign in front of large USA home

Mortgage rates tumbled by 10 basis points to 4.31% in the week ending 14th March. The latest reversal saw mortgage rates fall to the lowest level since the end of January last year. The figures were released by Freddie Mac.

Following the weekly slide, 30-year fixed rates stood 13 basis points below levels from 12-months ago.

Since the most recent peak at mid-November of last year, 30-year fixed rates have fallen by 63 basis points. Of greater significance is that fact the mortgage rates fell to their lowest level of the current year.

Economic Data from the Week

Economic data out of the U.S through the week was on the heavier side. Key stats included January retail sales and February inflation numbers. While retail sales were on the rise in January, a sizeable reversal to December numbers pointed to a softer 4th quarter GDP number.

February inflation figures were also skewed to the negative, with the core annual rate of inflation softening from 2.2% to 2.1%.

Durable goods orders released on Wednesday also painted a less than rosy picture of the economy. Core durable goods orders fell by 0.1% in January, month-on-month, adding further pressure on yields.

Outside of the data, uncertainty over Brexit supported demand for U.S Treasuries in the early part of the week. It was a vastly different story later on in the week, once mortgage rates had been calculated. Parliament voted in favor of an extension to Article 50, further easing the near-term chance of a no-deal departure from the EU. The vote came after a Wednesday vote in favor of blocking the option to depart on a no-deal basis.

Freddie Mac Rates

The weekly average rates for new mortgages as of 14th March were quoted by Freddie Mac to be:

  • 30-year fixed rates fell by 10 basis points to 3.31% in the week. Rates were down from 4.44% from a year ago. The average fee fell from 0.5 points to 0.4 points.
  • 15-year fixed rates slipped by 7 basis points to 3.76% in the week. Rates were down from 3.90% from a year ago. The average fee held steady at 0.4 points.
  • 5-year fixed rates eased by 3 basis points to 3.84% in the week. Rates increased by 17 basis points from last year’s 3.67%. The average fee held steady at 0.3 points.

Mortgage Bankers’ Association Rates

For the week ending 8th March, rates were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, decreased from 4.66% to 4.61%. Points decreased from 0.48 to 0.47 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances decreased from 4.67% to 4.64%. Points increased from 0.44 to 0.47 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances increased from 4.41% to 4.45%. Points increased from 0.25 to 0.34 (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 2.3% in the week ending 8th March. The increase partially reversed a 2.5% fall from the previous week.

The Refinance Index slipped by 0.2% in the week ending 1st March. The decline followed on from a 2% fall from the previous week.

The share of refinance mortgages decreased from 40.0% to 38.6%, following a fall from 40.4% to 40.0% in the week prior.

According to the MBA, marginally higher mortgage rates led to a fall in applications in the week. The MBA also noted that the average loan size for purchase applications increased to a record high.

The MBA noted that purchase activity picked up last week by almost 2% from the previous year. The upward trend in purchase activity has continued for 4 consecutive weeks, supporting the positive outlook for the housing market.

The MBA also released its monthly New Home Purchase Mortgage Application report for February.

According to the February report, mortgage applications for new home purchases increased by 3%, year-on-year. Month-on-month, mortgage applications surged by 6% in February.

For the week ahead

It’s a particularly quiet first half of the week on the economic calendar. January factory orders are due out on Tuesday. While skewed to the negative, the focus will remain on the U.S – China trade talks and Brexit early on in the week.

Further progress on trade talks and any vote in favor of Theresa May’s Brexit deal would support a jump in U.S Treasury yields.

Things will get a little more complicated on Wednesday, with the FED’s March policy decision. While interest rates are expected to be left unchanged, the FOMC projections will have a material impact. The focus will likely be on projections for growth and interest rate hikes for the coming year. Anything dovish and mortgage rates could be in for another slide.

With the peak home-buying season rapidly approaching, economic indicators and the FED will need to be on the more favorable side to support the housing market. House price growth has slowed and mortgage rates are at more than 1-year lows. Prospective buyers will need to have a positive outlook on the economy and employment to take advantage of the current buying environment.

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