U.S Mortgages – Rates Hold Steady, While Applications Rise Further

Mortgage rates hold and is that the new bottom? The government shutdown and U.S – China trade talks will likely decide…
Bob Mason
Home For Sale Real Estate Sign and House

Mortgage rates held steady in the week ending 17th January 2019, with 30-year fixed rates holding onto last week’s decline to remain unchanged at 4.45%.

The lack of an upward move marked a 10th consecutive week of flat or weekly declines.

Economic data out through the week was on the lighter side, with key stats through the week including inflation, manufacturing PMI and weekly jobless claims figures.

While the Philly FED Manufacturing PMI bounced in January, the NY Empire State Manufacturing PMI reported materially slower growth, with the PMI falling to its lowest level in over a year.

The numbers were certainly contrasting between the two states, with the new orders index hitting a 6-month high in Philly, while slowing in NY State.

A common theme between the two states was a fall in input prices, suggesting that inflationary pressures were easing, a negative for U.S Treasury yields.

On the monetary policy front, FOMC members continued to deliver or a more dovish stance to pin back any upward move in yields, with the U.S equity markets managing to make gains through the week in spite of some negative earnings results from the financial sector.

Outside of the U.S, economic data out of China reflected the effects of the ongoing trade war with the U.S, both imports and exports on the slide in December. While the trade surplus widened further, the larger slide in imports is an ominous sign of what could lie ahead should there be no near-term resolution.

Freddie Mac weekly average rates for new mortgages as of 17th January were quoted to be:

  • 30-year fixed rate loan remained unchanged at 4.45% in the week, while up from 4.04% a year ago. The average fee slipped from 0.5 points to 0.4 points.
  • 15-year fixed rates fell from 3.89% to 3.88% in the week, while up from 3.49% from a year ago. The average fee remained unchanged at 0.4 points.
  • 5-year fixed rates increased from 3.83% to 3.87% in the week and up 0.41% from last year’s 3.46%. The average fee held steady at 0.3 points.

Mortgage Bankers’ Association Rates for the week ending 11th January were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, increased from 4.70% to 4.76%, with points increasing from 0.47 to 0.52 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances remained unchanged at 4.74%, the lowest level since Apr-18, with points decreasing from 0.47 to 0.45 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances increased from 4.52% to 4.53%, with points increasing from 0.28 to 0.31 (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 13.5% in the week ending 11th January, following on from the previous week’s 23.5% jump. A second sold week of increases saw the index hit its highest level since February 2018.

The Refinance Index bounced by another 19% in the week ending 11th January, following on from the previous week’s 35% surge, to take the index to its highest level since March 2018.

The share of refinance mortgages increased from 45.8% to 46.8%, week-on-week in the week ending 11th January, following on from the previous week’s increase from 42.7% to 45.8%, to hit the highest level since January 2018.

According to the MBA, mortgage rates were pinned back due to uncertainty over the extended government shutdown, continued evidence of slowing global growth, Brexit, a more patient FED and a choppy stock market.

With mortgage rates on a downward trend, inventories on the rise and labour market conditions remaining solid, the peak season for homebuyers could provide the sector a much needed boost, mortgage rates needing to hold or head further down going into March to drive a surge in buying activity.

The MBA released its new home purchase mortgage application figures for December:

  • Mortgage applications for new home purchases fell by 6.1% year-on-year, while down by 13% compared with November.
  • New home sales fell from 627,000 units to 552,000 units, marking a 2nd consecutive monthly fall, with economic uncertainty and a choppy stock market environment being attributed to the decline.
  • The slide in applications comes in spite of the downward trend in mortgage rates and solid labor market conditions.

For the week ahead

Economic data is on the lighter side, with key stats including prelim January private sector PMI numbers, December existing home sales figures, durable goods orders numbers and the weekly jobless claims numbers in what’s a shortened week, the U.S markets closed on Monday.

While we can expect the private sector PMI and durable goods orders figures to be the key drivers from the economic calendar, the greater influence on U.S Treasury yields and U.S mortgage rates will come from market risk appetite, a number of factors expected to drive the U.S market near-term:

  • Brexit: An extension to the 29th March departure date should ease any near-term market angst and raise the possibility of a 2nd
  • S – China trade talks: Progress will need to be made to support a jump in yields, the news late last week suggesting that the U.S administration may look to ease tariffs on China.
  • S Government shutdown: Now the longest ever, the more extended the more negative for yields.
  • S and Global economic outlook: GDP figures out of China at the start of the week could hit risk appetite hard should the numbers catch the markets off-guard.

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