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U.S Mortgage Rates Sank to a 13-Week Low as Geopolitical Risk Hit Risk Appetite

Bob Mason

Mortgage rates fell by 8 basis points to 3.64% in the week ending 9th January. In the week prior, 30-year mortgage rates had fallen by 2 basis point to 3.72%.

The weekly decline left mortgage rates at 13-week lows. 30-year rates continued to hold close to levels last seen in early November of 2016, according to figures released by Freddie Mac.

Compared to this time last year, 30-year fixed rates were down by 81 basis points.

30-year fixed rates are also down by 130 basis points since November 2018’s most recent peak of 4.94%.

Economic Data from the Week

Economic data took a back seat in spite of some key numbers out of the U.S and other major economies.

Alarm bells continued to ring going into Wednesday morning, as the markets awaited Iran’s response to The U.S Drone Strike.

Keys Stats from the U.S included the ISM Non-Manufacturing PMI for December, which beat forecasts. On Wednesday, the ADP’s nonfarm employment change figures also impressed.

Disappointing nonfarm payroll and wage growth figures from last Friday, however, may add further pressure on yields, though optimism continues to be the theme…

Freddie Mac Rates

The weekly average rates for new mortgages as of 9th January were quoted by Freddie Mac to be:

  • 30-year fixed rates decreased by 8 basis point to 3.64% in the week. Rates were down from 4.45% from a year ago. The average fee remained unchanged at 0.7 points.
  • 15-year fixed rates slid by 9 basis points to 3.07% in the week. Rates were down from 3.89% from a year ago. The average remained unchanged at 0.7 points.
  • 5-year fixed rates tumbled by 16 basis points to 3.30% in the week. Rates were down by 53 basis points from last year’s 3.83%. The average fee held steady at 0.3 points.

According to Freddie Mac, risk aversion drove demand for the safety of U.S Treasuries that contributed to the slide in mortgage rates.

For prospective homebuyers and homeowners looking to refinance, the slide provides further support to the sector. Solid labor market conditions are expected to continue to fuel demand, particularly with mortgage rates at current levels.

Mortgage Bankers’ Association Rates

For the week ending 3rd January, rates were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, decreased from 3.87% to 3.85%. Points fell from 0.28 to 0.23 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances fell from 3.95% to 3.91. Points increased from 0.31 to 0.34 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances decreased from 3.92% to 3.88%. Points decreased from 0.30 to 0.17 (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, decreased by 1.5% in the week ending 3rd January 2020, compared with 2-weeks prior. In the week ending 20th December 2019, the Index had fallen by 5.3%.

The Refinance Index decreased by 8% from 2-weeks prior in the week ending 3rd January. The Index had fallen by 5% in the week ending 20th December. The Refinance Index was up by 74% from the same week a year earlier.

The share of refinance mortgage activity increased from 54.8% to 58.9% in the week. (Compared with the week prior).

According to the MBA, refinance applications will likely trail off through the 1st half of 2020. A sharp drop would be needed for existing homeowners to refinance.

The MBA also expects the strong job market to continue to support purchase activity. A pickup in construction at the end of 2019 should deliver more inventory for prospective buyers.

For the week ahead

It’s a busy week, with key stats due out of the U.S including December inflation and retail sales figures due out on Tuesday and Thursday.

Expect manufacturing figures out of NY State and Philly to also influence on Wednesday and Thursday.

Outside of the stats, geopolitics will also continue to give U.S Treasuries direction.

On Friday, the U.S Administration announced fresh tariffs on Iran. The move came in the wake of Wednesday’s Iran missile attack on bases in Iraq that housed U.S troops.

How Iran responds and whether there is an acceptance of Trump’s olive branch will be key. Iran’s unintentional downing of a passenger plane has certainly caused more angst. Last week’s retaliation was a modest one and it’s unlikely to be over just yet. A cyber attack and more likely awaits the U.S near-term.

From trade, China’s vice premier will sign the phase 1 agreement on 15th, which is market positive. That is assuming of course that the U.S President doesn’t back away…

With economic data and geopolitics in focus, there are also corporate earnings to factor in. Bank of American, Citigroup, JPMorgan, Goldman Sachs, and Morgan Stanley are scheduled to release in the week ahead…

This article was originally posted on FX Empire

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