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U.S Mortgage Rates Tick Up as Stimulus and Stats Point to a Speedier Recovery

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Mortgage rose for the 1st time in 3-weeks in the week ending 4th June, delivering a 5th weekly gain in 11-weeks.

30-Year fixed rates increased by 3 basis points to 3.18%. In the previous week, 30-year fixed rates had fallen by 9 basis points to a new all-time low 3.15%.

Compared to this time last year, 30-year fixed rates were down by 64 basis points.

30-year fixed rates were also down by 176 basis points since November 2018’s most recent peak of 4.94%.

Economic Data from the Week

Economic data was on the heavier side through the 1st half of the week.

Key stats included the market’s preferred ISM private sector PMI numbers and ADP nonfarm employment figures for May.

Both the manufacturing and non-manufacturing PMIs reported a slower pace of contraction. The all-important non-manufacturing PMI rose from 41.8 to 45.4.

With the markets looking ahead to the official labor market numbers on Friday, the ADP numbers came in ahead of forecasts. In May, nonfarm employment fell by 2.76m, which was far better than a forecasted decline of 9m.

From elsewhere, rising PMIs from China and the Eurozone also drove demand for riskier assets in the week.

On the policy front, news of a sizeable fiscal stimulus from Germany and expectations of more across the EU and the U.S added to the pickup in risk appetite.

On the geopolitical risk front, there were also no major moves from Beijing or Washington to spook the markets.

A move away from the safe havens led to a rise in U.S Treasury yields and ultimately the uptick in mortgage rates.

Freddie Mac Rates

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

  • 30-year fixed rates rose by 3 basis points to 3.18% in the week. Rates were down from 3.82% from a year ago. The average fee decreased from 0.8 to 0.7 points.

  • 15-year fixed remained unchanged at 2.62% in the week. Rates were down from 3.28% compared with a year ago. The average fee remained unchanged at 0.7 points.

  • 5-year fixed rates decreased by 3 basis points to 3.10% in the week. Rates were down by 42 points from last year’s 3.52%. The average fee remained unchanged at 0.4 points.

According to Freddie Mac, the economy continues to slowly recover. All signs are pointing to a solid recovery in home sales activity going into the summer.

Low mortgage rates are a key factor in this recovery. While homebuyer demand is up and has been broad-based across states, supply has been slow to improve.

Freddie Mac noted that the gap between supply and demand has widened even further than the large, pre-pandemic, gap.

Mortgage Bankers’ Association Rates

For the week ending 29th May, rates were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, increased from 3.41 to 3.46%. Points decreased from 0.30 to 0.23 (incl. origination fee) for 80% LTV loans.

  • Average interest rates for 30-year fixed with conforming loan balances decreased from 3.42% to 3.37%. Points decreased from 0.33 to 0.30 (incl. origination fee) for 80% LTV loans.

  • Average 30-year rates for jumbo loan balances decreased from 3.71% to 3.66%. Points increased from 0.29 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, decreased 3.9% in the week ending 29th May. In the week prior, the Index had increased by 2.7%.

The Refinance Index slid by 9% from the previous week and was 137% higher from the same week one year ago. In the previous week, the Refinance Index had declined by 0.2%.

The refinance share of mortgage activity slid from 62.6% to 59.5% of total applications in the week. In the week prior, the share had fallen from 64.3% to 62.6% of total applications.

According to the MBA:

  • Purchase applications continued their recent ascent, rising by 5% last week and 18% compared to a year ago.

  • Pent up demand from the lockdown drove the recovery from the weekly declines seen earlier in the spring.

  • In spite of this, there are still many households affected by the widespread job losses and economic downturn.

  • High unemployment and low housing supply may restrain a more meaningful rebound in purchase applications near-term.

  • Refinance applications fell for a 7th consecutive week. Earlier in the year, refinances had accounted for a peak of 76% of total applications.

For the week ahead

It’s a relatively quiet 1st half of the week for the Greenback.

Key stats include May inflation figures and the weekly jobless claims figures. We will expect the markets to brush aside JOLTs job openings for April.

The main event of the week is the FED’s monetary policy decision on Wednesday. FOMC economic projections and the FED’s interest rate projections will garner plenty of attention. Will there be further monetary policy support?  We aren’t expecting any talk of dropping rates to zero and the interest rate projections will likely reflect that.

Timelines on how long interest rates will remain at current levels and the FED’s plans, vis-à-vis unlimited purchases of government bonds and mortgage bonds will be of influence, however.

From elsewhere, trade data out of China in the early part of the week will also garner plenty of interest. Risk appetite may well drive Treasury yields northwards, as the EU and the U.S deliver another wave of fiscal support.

On the geopolitical risk front, any chatter from Beijing or Washington will influence risk sentiment in the week, however.

This article was originally posted on FX Empire