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U.S Mortgage Rates Fall as COVID-19 Infection Rates Pin Back U.S Treasury Yields

Mortgage rates hit reverse in the week ending 21st January, ending a run of 2nd consecutive weekly gains. 30-year fixed rates fell by 2 basis points to 2.77%.

Compared to this time last year, 30-year fixed rates were down by 83 basis points.

30-year fixed rates were down by 217 basis points since November 2018’s last peak of 4.94%.

Economic Data from the Week

Through the 1st half of the week, there were no material stats to provide U.S Treasury yields with direction.

From elsewhere, 4th quarter GDP numbers from China impressed through had a muted impact.

News of a new wave of the COVID-19 pandemic in China muted the impact of the numbers at the start of the week. Concerns over a reintroduction of containment measures tested support for riskier assets.

A continued rise in new COVID-19 cases across the U.S also pinned back yields in the week. Expectations of a sizeable U.S stimulus package and an aggressive vaccination drive in the U.S provided support, however.

Freddie Mac Rates

The weekly average rates for new mortgages as of 21st January were quoted by Freddie Mac to be:

  • 30-year fixed rates slipped by 2 basis points to 2.77% in the week. This time last year, rates had stood at 3.60%. The average fee remained steady at 0.7 points.
  • 15-year fixed rates fell by 2 basis point to 2.21% in the week. Rates were down by 83 basis points from 3.04% a year ago. The average fee fell from 0.7 points to 0.6 points.
  • 5-year fixed rates slid by 32 basis points to 3.80%. Rates were down by 48 points from 3.28% a year ago. The average fee remained unchanged at 0.4 points.

According to Freddie Mac,

  • Rates have hovered near historic lows for almost a year, fueling purchase and refinance activity amid the COVID-19 pandemic.
  • In recent weeks, however, rates have begun to fluctuate as political and economic factors drive yields higher.
  • Freddie Mac continues to forecast rates to remain relatively low this year, however. The FED is expected to keep interest rates anchored to near zero for a longer period of time until the economy rebounds.

Mortgage Bankers’ Association Rates

For the week ending 15th January, the rates were:

  • Average interest rates for 30-year fixed to conforming loan balances increased from 2.88% to 2.92%. Points increased from 0.33 to 0.37 (incl. origination fee) for 80% LTV loans.
  • Average 30-year fixed mortgage rates backed by FHA increased from 2.93% to 3.01%. Points fell from 0.32 to 0.29 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances increased from 3.17% to 3.19%. Points remained unchanged at 0.28 (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 1.9% in the week ending 15th January. In the week prior, the index had surged by 16.7%.

The Refinance Index fell by 5% and was 87% higher than the same week one year ago. In the previous week, the index had jumped by 20%.

The refinance share of mortgage activity decreased from 74.8% to 72.3% of total applications in the week ending 15th January. In the week prior, the share had increased from 73.5% of total applications to 74.8%.

According to the MBA,

  • Mortgage rates rose across the board, with 30-year fixed rates hitting its highest level since Nov-2020.
  • 15-year fixed rates increased for the first time in 7-weeks.
  • Market expectations of a larger than anticipated fiscal relief package have driven Treasury yields higher of late.
  • After a post-holiday surge in refinances, higher rates chipped away at demand.
  • Purchase applications remained strong based on current housing demand and was up by 15% from last year.
  • Homebuyers in early 2021 continue to seek newer, larger homes.
  • The average loan size for purchase loans jumped to $384,000, the second highest level in the survey.

For the week ahead

It’s a busier first half of the week on the U.S economic calendar. Consumer confidence and core durable goods and durable goods orders will be in focus.

On the monetary policy front, the FED is also in action on Wednesday. The promise of lower for longer would continue to pin back U.S Treasury yields.

Away from the economic calendar, however, U.S politics and COVID-19 news updates will remain key drivers.

U.S fiscal stimulus chatter and COVID-19 vaccination and new infection rates will be in focus.

From elsewhere, expect COVID-19 news from Europe and China to also influence.