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U.S Mortgages – Rise For The First Time in 4-Weeks

By:
Bob Mason
Updated: Sep 2, 2018, 08:20 UTC

Mortgage rates were on the rise last week, though with market jitters over global trade hitting at the end of the week, a reversal may be on the cards.

U.S Mortgages – Rise For The First Time in 4-Weeks

Mortgage rates were on the rise in the week ending 30th August, bringing to an end a downward trend that saw rates fall for 3 consecutive week.

The moves through the week were relatively modest, with mortgage rates having remained relatively flat through the summer, following a sharp rise through the early part of the year.

Economic data through the week supported 10-year Treasury yields, with August consumer confidence numbers impressing on Tuesday and 2nd estimate GDP numbers for the 2nd quarter coming in ahead of expectations and up from 1st estimates, with the FED’s preferred Core PCE Price Index numbers also showing a slight pickup in the annual rate of core inflation in July.

On the housing front, the S&P / CS HPI Composite – 20 n.s.a showed that house prices rose by 6.3% in June, year-on-year, down from 6.5% in May, while pending home sales slid by 0.7% in July, reversing June 1% rise, as affordability continues to be an issue for prospective home buyers.

While mortgage rates have settled, inventories had supported house prices through the early part of the year, with the jump in mortgage rates impacting prospective buyers, with wage growth having remained relatively tepid amidst an inflation accelerating environment.

A slowdown in house price appreciation, a pickup in wage growth, a steadying in mortgage rates and a strong economy all support the housing sector, but with new home sales and existing home sales on the slide in July, the housing starts and building permit figures are going to need to see a sharp increase before the winter kicks in to support prospective home buyers.

Freddie Mac weekly average rates for new mortgages as of 30th August were quoted to be:

  • 30-year fixed rate loan increased from 4.51% to 4.52% in the week, while up from 3.82% a year ago. The average fee remained unchanged at 0.5 points.
  • 15-year fixed rates fell from 3.98% to 3.97% in the week, while up from 3.12% from a year ago. The average fee remained unchanged at 0.5 points.
  • 5-year fixed rates increased from 3.82% to 3.85% the week, while up from last year’s 3.14%. The average remained unchanged at 0.3 points.

Mortgage Bankers’ Association Rates for the week ending 24th August were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, decreased from 4.82% to 4.77%, with pints increasing from 0.69 to 0.75 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances fell from 4.81% to 4.78%, its lowest rate since the week ending 20th July 2018 with points rising from 0.42 to 0.46 (incl. origination fee) for 80% LTV loans..
  • Average 30-year rates for jumbo loan balances remained unchanged at 4.68%, with points rising from 0.28 to 0.30 (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, fell by 1.7%, partially reversing the previous week’s 4.2% rise, week-on-week.

The Refinance Index decreased by 3% in the week ending 24th August, partially reversing the previous week’s 6% rise, with the share of refinance mortgages remaining unchanged at 38.7%.

For the week ahead, while it’s a shortened week in the U.S, with the markets closed for Labour Day, it’s a particularly busy week on the data front, with key stats through the week including the market’s preferred ISM private sector PMI numbers for August, July factory orders, 2nd quarter nonfarm productivity and unit labour cost numbers and the all-important wage growth and nonfarm payroll figures, with the ADP nonfarm employment change numbers on Thursday to provide some guidance ahead of Friday’s official figures.

2nd quarter GDP numbers may have eased any immediate concerns over the effects of the ongoing trade war with China on the U.S economy and solid numbers in the week ahead would further alleviate, though we would expect early 4th quarter economic indicators to be more reflective of an extended trade war.

While the stats could provide some upward pressure on U.S Treasury yields and ultimately mortgage rates, sentiment towards the ongoing trade war between the U.S and China may overshadow the numbers, particularly following Canada’s failure to close out NAFTA talks by Friday’s deadline.

Demand for U.S Treasuries amidst the ongoing trade war between the U.S and China has pinned back yields and mortgage rates through the summer and with talks of Trump looking to withdraw the U.S from the WTO and to add more tariffs on China, risk aversion could provide prospective home owners with more relief.

The good news for now is that the U.S economy has managed to hold up, the bad news down the road could be the side-effects of a trade war on labour market conditions and ultimately the housing market, an extended trade war tending to be a negative for all.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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