U.S Mortgages Rates Up Again. That’s 8 Weeks in a Row

It was another tough week for the markets, with the Dow Jones Industrial Average sliding 3.05%, as the markets not only faced the prospects of a more hawkish FED, but also a U.S President intent on rocking the boat, by kicking off a trade war. The trade war comes off the back of a currency war that is already in full swing, which has left the Dollar in the red year-to-date in spite of the shift in sentiment towards monetary policy and rise in U.S Treasury yields.

In the week, FED Chair Jerome Powell’s testimony to Congress was in line with expectations for some, but for those looking to acquire a new home, the prospects of at least 4-rate hikes this year will need to be factored in when working out the financials.

The good news is that the U.S economic outlook remains upbeat and the FED has little interest in slowing down growth, which is not trailblazing by historical standards. The bad news is that the continued move towards monetary policy normalization is unlikely to shift into reverse anytime soon, which means that the low-interest rate environment enjoyed in recent years is coming to an end.

From the economic data released out of the U.S last week, new home sales slumped 7.8% in January, the slide coming off the back of a 7.6% fall in December. Added to that, pending home sales were also on the slide, down 4.7% in January, following December’s no change. It may be too early to suggest that the January numbers can be attributed to rising rates, but the continued rise in mortgage rates is certainly closing the door for many and that will ultimately impact the housing sector.

Affordability is a real issue and, while wage growth picked up in January, house prices have been rising at a more solid pace. A tightening labor market and inventory constraints in the housing sector have left the supply and demand curve in the favor of homeowners.

We could see scales begin to tip the other way should mortgage rates continue to rise and begin to approach 5% levels.

Freddie Mac rates for new mortgages last week were quoted to be:

• 30-year fixed rate loan rose to from 4.40% to 4.43% last week and up from 4.10% a year ago.
• 15-year fixed rates rising from 3.85% to 3.90% and from 3.32% from a year ago.
• 5-year fixed rates stand at 3.62%, down from the previous week’s 3.65%, while up from last year’s 3.14%.

Average interest rates for 30-year fixed, backed by the FHA rose jumped from 4.58% to 4.68%, while the average interest rate for 30-year fixed with conforming loan balances was unchanged at 4.64%. 30-year rates for jumbo loan balances, in contrast, fell from 4.62% to 4.57%

Refinancing rates are currently as follows:

• 30-year fixed to refinance rates slipped from 4.32% to 4.30%,
• 15-year fixed to refinance rates fell from 3.73% to 3.69%.
• 10-year fixed to refinance rates fell from 3.65% to 3.62%.

Interestingly, in spite of the softer pending and new home sales figures, coupled with the continued rise in interest rates, mortgage applications rose by 2.7% in the week ending 23^rd February, seasonally adjusted. On an unadjusted basis, the MBA reported that the Market Composite Index, which is a measure of mortgage loan application numbers, fell by 6% week-on-week.

Despite the continued fall in refinance rates, the refinance share of total mortgage applications fell further in the week ending 23^rd February, down from 44.4% to 41.8%. The continued fall is a reflection of last year’s increased activity in anticipation of rising rates through late last year and the first half of this year.

The fall in jumbo loan rates may provide hope that the upward trend in mortgage rates may be coming to an end. But, with rates linked to 10-year U.S Treasury yields, the week ahead is another busy one, which could see yields get another boost should the economic data impress.

Key stats scheduled for release in the week ahead include February’s nonfarm payroll and wage growth figures, 4^th quarter unit labor cost numbers and service sector PMI numbers, with FOMC member chatter also there to consider.

Last week, we heard from voting member Dudley, who considered 4-rate hikes in a single year to still be gradual, so getting a sense of how other members define gradual will be of influence. As of last week, while the probability of a March rate hike sits close to 100%, the probability of 4 rate hikes this year is still relatively low, so how the economy, wage growth and inflation fare through the first half of the year will be material, as will the FED’s economic projections that are scheduled for release later this month.