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U.S Mortgages – Down Again as Treasury Yields Pullback Further

Bob Mason
Mortgage rates hold and is that the new bottom? The government shutdown and U.S – China trade talks will likely decide…

Mortgage rates continued to fall in the week ending 27th December, with 30-year fixed rates falling by 0.07 percentage points to 4.55%, according to figures released by Freddie Mac.

The downward trend in mortgage rates formed back in mid-November has seen mortgage rates fall to sit just above 5th September’s 4.54%, with the latest decline marking a 7th consecutive flat or weekly fall.

Through the week, it was a particularly choppy holiday season, with the DJIA seeing its worst Christmas Eve on record, followed by the largest single day point gain in history, the volatility certainly spooking investors, while the Dow managed to close out the week in positive territory in spite of the rollercoaster ride.

On the economic data front, it was a relatively quiet week, with key stats out of the U.S limited to the weekly jobless claims figures, December consumer confidence numbers and at the end of the week, December’s Chicago PMI and November pending home sales.

While consumer confidence slipped at the end of the year, a better than expected Chicago PMI reflected strong growth continuing through the 4th quarter, in stark contrast to the Philly and NY State numbers.

For the housing sector, house prices rose by 5% in October, year-on-year, easing back from an annualised 5.2% rise in September, with further pressure coming as pending home sales slipped by 0.7% in November, following a 2.6% slide in October.

While mortgage rates have been on the slide, mortgage applications have failed to bounce back and will need to do so going into the New Year for the housing sector to avoid a marked slowdown.

Freddie Mac weekly average rates for new mortgages as of 27th December were quoted to be:

  • 30-year fixed rate loan fell from 4.62% to 4.55% in the week, while up from 3.99% a year ago. The average fee rose from 0.4 to 0.5 points.
  • 15-year fixed rates fell from 4.07% to 4.01% in the week, while up from 3.44% from a year ago. The average fee remained unchanged at 0.4 points.
  • 5-year fixed rates increased from 3.98% to 4.00% in the week and up 0.53% from last year’s 3.47%. The average fee held steady at 0.3 points.

Mortgage Bankers’ Association rates and application numbers for the week ending 21st and 28th December will be released on 3rd January along with numbers for 28th December. The below numbers are from the week ending 14th December.

  • Average interest rates for 30-year fixed, backed by the FHA, decreased from 4.97% to 4.95%, the lowest level since Sept-18, with points decreasing from 0.55 to 0.51 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances decreased from 4.96 to 4.94 the lowest level since Sept-18, with points decreasing from 0.48 to 0.43 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances decreased from 4.80% to 4.74%, the lowest level since Sept-18, with points falling from 0.33 to 0.26 (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, slid by 5.8% in the week ending 14th December, reversing the previous week’s 1.6% rise, week-on-week.

The Refinance Index fell by 2%, in the week ending 14th December, reversing the previous week’s 2% rise, with the share of refinance mortgages increasing from 41.5% to 43.5%, the highest share of applications since February 2018.

While the numbers are unavailable until the New Year, 10-year Treasury yields remained on the back foot through the holiday period and the week leading into the holiday period, which will likely continue to support the downward bias for mortgage rates.

The only question will be whether applications will see a bounce back to provide much needed support to the housing sector, though the holiday season isn’t the best time for prospective home buyers, particularly during the unprecedented volatility witnessed across the U.S equity markets.

For the week ahead, the New Year kicks off with a bang, with economic data scheduled for release including December private sector PMI numbers, November new home sales figures and December’s ADP nonfarm employment change figures that will give investors plenty to think about ahead of Friday’s labour market numbers.

Outside of the U.S, demand for U.S Treasuries could spike should manufacturing PMI numbers out of China deliver disappointment through the week, with the wild ride in the global equity markets also a factor and influence on both rates and applications.

This article was originally posted on FX Empire

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