U.S Mortgages – Up for the 1st Time in 12-Weeks

A downward trend in Mortgage rates came to an end and there could be further gains, following last week’s non-farm payrolls.
Bob Mason
Upscale modern house for sale

Mortgage rates rose for the first time in 12-weeks in the week ending 31st January. 30-year fixed rates increased by 1 percentage point to 4.46%, according to figures released by Freddie Mac.

While mortgage rates have been on a downward trend ahead since mid-November, mortgage rates continue to sit well above rates from a year ago. 30-year fixed rates are up by 0.24%.

The good news for prospective home buyers, and for those looking to refinance, is that mortgage rates have dropped by 48 percentage points from last year’s high.

A true litmus test of the U.S economy may be on the cards in the coming months. A boost in demand and applications is expected, supported by a marked slowdown in house price growth and rising inventories. It will all boil down to consumer sentiment in the coming months.

Economic Data From the Week

According to figures released by the Conference Board, the CB Consumer Confidence Index fell from 126.6 to 120.2 in January. While the assessment of current business and labor market conditions eased slightly from 169.9 to 169.6, the Expectations Index, slid from 97.7 to 87.3. The Government shutdown contributed to the slide. As a result, the February numbers will be key in gauging whether buying demand will rise with the less optimistic outlook.

Consumer’s outlook on labor market conditions deteriorated in January. Those expecting more jobs ahead fell from 16.6% to 14.7%, while those expecting fewer jobs rose from 14.6% to 16.5%. Those expecting rising income also weakened, falling from 22.4% to 18.2%. Consumers’ expecting a decrease also declined, falling from 7.6% to 7.1%.

While the numbers weighed on the Dollar upon release, an end to the government shutdown, progress on trade talks between the U.S and China, a patient FED and a series of relatively upbeat stats through the week supported risk sentiment and a pickup in U.S Treasury yields.

On the property side, November new home sales surged by 16.8% in November, reversing October’s 8.3% slide with interest, which supports the more optimistic outlook for the property market near-term.

Freddie Mac Rates

The Weekly average rates for new mortgages as of 31st January were quoted to be:

  • 30-year fixed rate loan rose by 0.01% to 4.46% in the week. Rates were up from 4.24% from a year ago. The average fee increased by 0.1 points to 0.5 points.
  • 15-year fixed rates rose by 0.01% to 3.89% in the week. Rates were up from 3.68% from a year ago. The average fee remained unchanged at 0.4 points.
  • 5-year fixed rates increased from 3.90% to 3.96% in the week. Rates increased by 0.43% from last year’s 3.53%. The average fee held steady at 0.3 points.

Mortgage Bankers’ Association Rates

For the week ending 25th January were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, decreased from 4.82% to 4.77%. Points decreased from 0.62 to 0.58 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances increased from 4.75% to 4.76%. Points increased from 0.44 to 0.47 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances increased from 4.59% to 4.60%. Points decreased from 0.25 to 0.24 (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 3% in the week ending 25th January. The decline comes off the back of the previous week’s 2.7% fall.

The Refinance Index slid by 6% in the week ending 25th January. The fall follows on from a 5% decline from the previous week.

The share of refinance mortgages decreased from 44.5% to 42.0%. The fall follows the previous week’s decrease from 46.5% to 44.5%.

According to the MBA, the purchase index remained approximately 6% above its long-run average. While affordability and supply constraints persist, the healthy job market and underlying demographic fundamentals both point to gradual purchase growth in the coming months.

For the week ahead

Economic data, due out of the U.S, will influence risk appetite and the direction of U.S Treasury yields. Key stats include non-manufacturing PMI numbers due out on Tuesday and 4th quarter nonfarm productivity and unit labor cost numbers. Furthermore, 1st estimate, 4th quarter GDP figures are also expected to be released. The release had been delayed due to the government shutdown.

Positive numbers and continued support for the equity markets could see mortgage rates pick up in the week. In fact, January’s nonfarm payroll figures already impressed last Friday.

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