U.S Mortgage Rates – Down Again and it’s All Thanks to Trump

Mortgage rates were on the decline once more through the week ending 28th June, with rates now having fallen in four of the last five weeks, according to figures released by Freddie Mac.

While the recent reversal in mortgage rates will be relief for some, the continued supply issue faced in the housing sector continues to push house prices northwards, though expectations are for the housing sector to begin hitting a soft patch, with the upward momentum in mortgage rates over the last 12-months likely to weigh on demand over the near-term.

Through the week, housing sector data released out of the U.S included May new home sales and pending home sales figures.

While new home sales surged by 6.7% in May, more than reversing the 3.7% slide in April, pending home sales fell by 0.5%, following a 1.3% fall in April, sending some mixed signals, as home owners hold on to existing homes in the wake of rising mortgage rates through the first 5-months of the year.

While inventories remain a concern, a 5% jump in housing starts back in May will provide some relief for prospective home owners, though unlikely to be enough to materially rebalance the sector through the summer, though whether demand is sustainable at current levels remains to be seen, the recent reversal in mortgage rates certainly a near-term positive for the sector.

The decline in mortgage rates came off the back of falling U.S Treasury yields as trade war jitters continued to rile the global financial markets, with economic data out of the U.S and FOMC member commentary raising some concern over U.S economic growth prospects for the 2nd half of the year.

Freddie Mac weekly average rates for new mortgages as of 28th June were quoted to be:

  • 30-year fixed rate loan decreased from 4.57% to 4.55% in the week, while up from 3.88% a year ago.
  • 15-year fixed rates remained unchanged at 4.04% last week, while up from 3.17% from a year ago.
  • 5-year fixed rates rose from 3.83% to 3.87% over the week, while up from last year’s 3.17%.

Mortgage Bankers’ Association Rates for the week ending 22nd June were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA decreased from 4.82% to 4.81%.
  • Average interest rate for 30-year fixed with conforming loan balances increased from 4.83% to 4.84%.
  • Average 30-year rates for jumbo loan balances decreased from 4.79% to 4.70%.

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 4.9%, following the previous week’s 5.1% rise week-on-week.

The Refinance Index fell by 4% in the week ending 22nd June, partially reversing the previous week’s 6% surge, with the refinance share of mortgages rising from 36.8% to 37.6%, reversing the recent fall in the share of refinance mortgages.

Economic data through the week ahead is on the heavier side, with key stats including the market’s preferred ISM private sector manufacturing PMI numbers and the all-important June nonfarm payroll and wage growth figures.

Following softer than expected finalized 1st quarter GDP numbers last week, the markets will be looking for momentum in the U.S economy at the end of the 2nd quarter, any softer numbers likely to see demand for U.S Treasuries on the rise that would support a further decline in U.S mortgage rates through the week.

Outside of the data, FOMC member commentary, the release of the FOMC minutes and noise from the Oval Office will likely be the key drivers through to Friday’s labour market figures, with trade tariffs scheduled to be imposed by both the U.S and China on 6th July.

It’s been a rough ride for consumers, with consumer confidence easing in June off the back of the trade war chatter, with a slowdown in manufacturing having already been evident ahead of the June Chicago PMI that had been released last Friday.

We would certainly expect the housing sector to get a little nervous if the June ISM private sector PMI numbers disappoint ahead of Friday’s wage growth and nonfarm payroll numbers and, with a number of FOMC members having already called the 2nd quarter as the tail end of the economic growth cycle and while mortgage rates may have peaked as a result, demand may become a negative for the sector should the FOMC doves be correct.