U.S Mortgages – Rates Steady after early November’s Jump

Following the previous week’s 11 basis point jump in 30-year fixed mortgage rates to a 7-year high, rates held steady in the week ending 15^th November, with a number of factors pinning mortgage rates back from another week of gains through the week.

Economic data released through the week included October inflation figures that were released on Wednesday, softer inflation numbers easing some pressure on Treasury yields, while some relatively upbeat private sector PMI numbers and October retail sales figures on Thursday supported yields, with economic indicators out of the U.S yet to show signs of a slowdown.

Commentary from FED Chair Powell was also upbeat about the economy, though there was a warning possible impact should the global economy begin to slow, which came off the back of the previous week’s more hawkish than anticipated FOMC statement, the hawkish outlook on policy offsetting the negative effect on yields stemming from market risk aversion.

The hold at early 2011 highs led to greater angst over the housing market, which has begun to face some pressure from low inventories and a rising mortgage rate environment, with affordability continuing to be an issue in spite of lower cost housing showing little sign of a slowdown in demand, supported by rising wage growth and tight labour market conditions.

The upward price trend in lower price tier housing is adding to the sector woes however, with those looking to get onto the first rung of the property ladder needing to reconsider amidst the rising rate environment that doesn’t look ready to reverse anytime soon.

Freddie Mac weekly average rates for new mortgages as of 15^th November were quoted to be:

• 30-year fixed rate loan remained unchanged at 4.94% in the week, while up from 3.95% a year ago. The average fee remained unchanged at 0.5 points.
• 15-year fixed rates rose from 4.33% to 4.36% in the week, while up from 3.31% from a year ago. The average fee eased from 0.5 points to 0.4 points.
• 5-year fixed rates held steady at 4.14% in the week, while up from last year’s 3.21%. The average fee held steady at 0.3 points.

Mortgage Bankers’ Association Rates for the week ending 9^th November were quoted to be:

• Average interest rates for 30-year fixed, backed by the FHA, decreased from 5.15% to 5.08%, with points falling from 0.64 to 0.55 (incl. origination fee) for 80% LTV loans.
• Average interest rates for 30-year fixed with conforming loan balances increased from 5.15 to 5.17, with points rising from 0.51 to 0.55 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances increased from 4.97% to 4.98%, with points rising from 0.27 to 0.28 (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, slid by 3.2% in the week ending 9^th November, following on from the previous week’s 4% slide, week-on-week.

The Refinance Index fell by 4.3%, in the week ending 9^th November to the lowest since December 2000, following the previous week’s 3% fall, with the share of refinance mortgages rising from 39.1% to 39.4%, reversing the previous week’s fall.

The MBA attributed recent financial market volatility and increasing rates to the continued pullback in mortgage application activity, the shift coming in spite of a positive outlook on the overall economy.

Last week, the MBA also released its October New Home Purchase Mortgage Application figures:

• The latest MBA Builder Application Survey (BAS) showed that mortgage applications for new home purchases fell by 2.1% year-on-year, while up 11% month-on-month.
• Average loan sizes for new home purchase applications, at around $332,000, was at its lowest level since July 2017, suggesting that a recent increase in inventories has weighed on price growth in certain areas.

For the week ahead, it’s a shortened week, with Thanksgiving on Thursday, leaving key stats scheduled through the week being limited to October house price figures, durable goods orders and finalized consumer sentiment numbers and, while we can expect plenty of interest in the housing sector numbers, the effects of last week’s softer inflation figures on Treasury yields could be overshadowed by positive updates on trade talks between the U.S and China that would ultimately provide further upward pressure on Treasury yields and mortgage rates.

FOMC member chatter through the week will also need to be considered, along with geo-political risk in Europe, negative news expected to drive demand for U.S Treasuries that would see yields hit reverse to weigh on mortgage rates near-term, with a number of FOMC members also delivering more dovish comments on policy that could lead to a pin back in yields should the chatter continue in the week ahead.