U.S Mortgages – Upward Trend Resumes

Following last week’s pause, the upward trend in mortgage rates resumed in the week ending 25^th October, with 30-year fixed gaining 1 basis point to 4.86%

A relatively busy week on the data front contributed to the uptick in mortgage rates, with durable goods orders rising by 0.8% in September and the private sector seeing an increase in activity across both manufacturing and service sectors, driven by domestic demand.

On the downside for the housing sector, there was more bad news with new home sales sliding by 5.5% in September, reversing the previous month’s 3% gain, adding further pressure on a sector that is not only struggling with limited inventories, but also a rising mortgage rate environment as the FED looks to extend beyond normalization on the policy front.

The uptick in mortgage rates came in spite of a sell-off across the global equity markets that saw the Dow down 1.81% through to Thursday’s close, with the S&P500 down 2.25%, the losses coming even after a solid bounce on Thursday that saw the pair gains 1.63% and 1.41% respectively, driven by positive earnings results. Thursday’s equity market recovery provided the uptick in Treasury yields to give mortgage rates a minor gain, the slide in new home sales and stock market volatility having pinned back yields earlier in the week.

Freddie Mac weekly average rates for new mortgages as of 25^th October were quoted to be:

• 30-year fixed rate loan increased from 4.85% to 4.86% in the week, while up from 3.84% a year ago. The average fee remained unchanged at 0.5 points.
• 15-year fixed rates remained unchanged at 4.29% in the week, while up from 3.25% from a year ago. The average fee remained unchanged at 0.4 points.
• 5-year fixed rates increased from 4.10% to 4.14% in the week and up from last year’s 3.21%. The average fee held steady at 0.3 points.

Mortgage Bankers’ Association Rates for the week ending 19^th October were quoted to be:

• Average interest rates for 30-year fixed, backed by the FHA, increased from 4.99% to 5.07%, its highest level since April 2011, with points decreasing from 0.69 to 0.61 (incl. origination fee) for 80% LTV loans.
• Average interest rates for 30-year fixed with conforming loan balances increased from 5.10% to 5.11, its highest level since February 2011, with points easing from 0.55 to 0.52 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances increased from 4.98% to 5.01%, with points decreasing from 0.34 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, increased by 4.9% in the week ending 19^th October following on from the previous week’s 7.1% decline, week-on-week.

The Refinance Index jumped by 10%, in the week ending 19^th October, reversing the previous week’s 9% fall, with the share of refinance mortgages rising from 38.1% to 39.8%.

The bounce back in mortgage activity was attributed to weaker activity the prior week that was a shortened week, with Columbus Day having been on the Monday, with the largest effect being seen in refinance applications across the 2-weeks, which ultimately resulted in a net 1% rise. In contrast, purchase mortgage applications saw a net 2.2% decline over the 2-weeks, reflecting tight inventories and a deteriorating affordability environment.

The Mortgage Bankers Association also released its multifamily lending figures for 2017 on 25^th October.

• Strong market conditions supported a 6% rise in multifamily lending in 2017, with lenders providing a record high $285bn in new mortgages for apartment buildings with 5 or more units.
• It wasn’t just larger loan sizes, but also record levels of overall borrowing and lending that drove the annual rise.
• By Dollar volume, the greatest share went to the Government Sponsored Enterprises (“GSEs”) Fannie Mae and Freddie Mac.

For the week ahead, it’s a particularly busy on the economic data front, with key stats through the week including the FED’s preferred September inflation figures that are released alongside personal spending data, October consumer confidence figures on Tuesday, ADP nonfarm employment change numbers and 3^rd quarter employment cost index figures on Wednesday, and the market’s preferred ISM manufacturing PMI numbers on Thursday that are released alongside 3^rd quarter labour productivity and labour costs.

With 1^st estimate GDP numbers having been released last Friday, upward momentum in yields is expected though much will depend on market risk sentiment through the week, the sell-off in the global equity markets having supported demand for U.S Treasuries through the week in spite of the positive sentiment towards the U.S economy.