U.S Mortgages – Steady In Spite of a Bond Sell-Off

U.S Treasury yields failed to spur a 6th consecutive rise in mortgage rates last week, with geo-political risk likely to provide relief in the week ahead.
Bob Mason
mortgage rates

U.S mortgage rates managed to avoid a 6th consecutive weekly rise, with rates easing back by just 1 basis point to 4.71% for the week ending 4th October, according to Freddie Mac’s latest report, leaving mortgage rates just shy of last week’s 7-year high.

In spite of the minor pullback in the week, economic data out of the U.S continue to support the upward trajectory for mortgage rates, with 5% rates unlikely to be far off should momentum in the U.S economy continue, the mid-term elections deliver few shocks and the U.S and China settle their differences.

Economic data released through the week ending 4th October included softer than anticipated core PCE price index figures for August together with September private sector PMI numbers and September’s ADP nonfarm employment change and weekly initial jobless claims numbers that were all skewed to the positive ahead of official government nonfarm payroll and wage growth figures that were released on Friday and will influence next week’s moves.

Outside of the data, FED Chair Powell also contributed to the upward momentum in U.S Treasury yields, with a positive outlook on the economy and hawkish chatter on policy getting a market reaction, while the positive sentiment towards NAFTA’s replacement USMCA was offset by rising tensions between the U.S and China, which has raised question on whether the continued surge in economic activity is as a result of companies looking to avoid fresh tariffs or due to actual demand, business inventory numbers in the coming months likely to tell the story.

Freddie Mac weekly average rates for new mortgages as of 4th October were quoted to be:

  • 30-year fixed rate loan slipped from 4.72% to 4.71% in the week, while up from 3.85% a year ago. The average fee falling to 0.4 points from the previous week’s 0.5 points.
  • 15-year fixed rates fell from 4.16% to 4.15% in the week, while up from 3.15% from a year ago. The average fee fell from 0.5 points to 0.4 points.
  • 5-year fixed rates increased from 3.97% to 4.01% in the week and up from last year’s 3.18%. The average fee held steady at 0.3 points.

Mortgage Bankers’ Association Rates for the week ending 28th September were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, increased from 4.94% to 4.95%, its highest level since May 2011, with points decreasing from 0.83 to 0.80 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances eased from 4.97% to 4.96%, just shy of its highest level since April 2011, with points rising from 0.47 to 0.49 (incl. origination fee) for 80% LTV loans..
  • Average 30-year rates for jumbo loan balances increased from 4.92% to 4.93%, its highest level since July 2011, with points increasing from 0.30to 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, was unchanged in the week ending 28th September following on from the previous week’s 2.9% increase, week-on-week.

The Refinance Index decreased by 0.1%, in the week ending 28th September, following the previous week’s 3% rise, with the share of refinance mortgages remained unchanged at 39.4%.

The Mortgage Bankers Association also released its mortgage credit availability report for September:

  • The Mortgage Credit Availability Index (“MCAI”) fell by 0.8% to 182.1, reflecting a tightening in lending standards.
  • The Conventional MCAI increased by 1.2%, while the Government MCAI fell by 2.5%.
  • Out of the Conventional MCAI, the Jumbo MCAI increased by 2.7%, while the Confirming MCAI fell by 0.7%.
  • The Jumbo MCAI sub-index rose for a 5th time in 6 months to its highest level on record.
  • The decline in the government MCAI was attributed to a decline in loan programs with lower credit requirements and fewer streamline offerings, the combination taking the government MCAI to its lowest level since July 2015.

For the week ahead, it’s a less hectic economic calendar with the Monday holiday in the U.S, key stats through the week limited to wholesale and consumer inflation figures due out on Wednesday and Thursday. A forecasted uptick in the annual rate of inflation could spur another U.S Treasury sell-off, but with geo-political risks ever present and China returning from a week off, it’s not just the stats that will provide Treasuries and mortgage rates with direction through the week.

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