Interest Rates

U.S Mortgage Rates Continued to Sit at sub-3% ahead of Disappointing NFP Numbers

Mortgage rates were on the rise once more, logging a 3rd weekly increase in 4-weeks.

Reversing a 5 basis points fall from the previous week, 30-year fixed rates increased by 4 basis points to 2.99%.

The modest increase in mortgage rates left 30-year fixed rates at sub-3% for a 2nd consecutive week.

Compared to this time last year, 30-year fixed rates were down by 19 basis points.

30-year fixed rates were still down by 195 basis points since November 2018’s last peak of 4.94%.

Economic Data from the Week

It was another quiet first half of the week on the U.S economic calendar.

Key stats included manufacturing PMI numbers for May. The stats were skewed to the positive supporting the market optimism towards the economic outlook.

In May, the market’s preferred ISM Manufacturing PMI increased from 60.7 to 61.2.

There was also FOMC chatter in the week of a willingness to begin discussing a tapering to the asset purchasing program.

Joined with U.S President’s spending plans, rates nudged up in the week.

Freddie Mac Rates

The weekly average rates for new mortgages as of 3rd June were quoted by Freddie Mac to be:

  • 30-year fixed rates rose by 4 basis points to 2.99% in the week. This time last year, rates had stood at 3.18%. The average fee fell from 0.7 to 0.6 points.
  • 15-year fixed remained unchanged at 2.27% in the week. Rates were down by 35 basis points from 2.62% a year ago. The average fee remained unchanged at 0.6 points.
  • 5-year fixed rates increased by 5 basis points to 2.64%. Rates were down by 46 points from 3.10% a year ago. The average fee remained unchanged at 0.2 points.

According to Freddie Mac,

  • Home prices continued to accelerate while inventories remained low.
  • New home construction cannot catch up fast enough adding further upward pressure on house prices.
  • There are many potential homebuyers who would like to take advantage of low mortgage rates.
  • Competition is strong, however.
  • For homeowners, continued low rates make refinancing an option worth considering.

Mortgage Bankers’ Association Rates

For the week ending 28th May, the rates were:

  • Average interest rates for 30-year fixed conforming loan balances decreased from 3.18% to 3.17%. Points increased from 0.35 to 0.39 (incl. origination fee) for 80% LTV loans.
  • Average 30-year fixed mortgage rates backed by FHA decreased from 3.20% to 3.16%. Points rose from 0.25 to 0.31 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances increased from 3.30% to 3.34%. Points increased from 0.30 to 0.38 (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 a further 4.0% in the week ending 28th May. In the week prior, the index had declined by 4.2%.

The Refinance Index fell by 5% from the previous week and was 6% higher than the same week one year ago. The index had declined by 7% in the previous week.

In the week ending 28th May, the refinance share of mortgage activity decreased from 61.4% to 61.3% of total applications. The share had declined from 63.3% to 61.4% in the previous week.

According to the MBA,

  • Mortgage applications decreased for a 2nd week in a row, with the overall index reaching its lowest level since Feb-2020.
  • Tight housing inventory, obstacles to a faster rate of new construction, and rapidly rising home prices continued to hold back purchase activity.
  • The government purchase index fell to its lowest level in over a year and has now fallen year-on-year for 5 straight weeks.
  • Purchase applications were down almost 2% from a year ago.
  • Refinance activity also dropped for a 2nd consecutive week.
  • Even through rates have fallen below 3.2% over the past month, they are still around 20-30 basis points higher than the record lows in late 2020.

For the week ahead

It’s a particularly quiet first half of the week on the U.S economic calendar. JOLT’s job openings and trade figures are due out early in the week.

Following some disappointing NFP numbers from Friday, expect more interest in April’s job openings.

From elsewhere, trade data from China will also influence market risk sentiment early in the week.

May’s nonfarm payroll figures from the U.S, however, will likely support a pullback in mortgage rates in the week.

On the monetary policy front, FOMC chatter will also influence, however. Friday’s NFP numbers have raised some doubt over whether the FED will make a near-term move…