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U.S Mortgage Rates Fall Back as Purchasing Activity Continues to Rebound

Mortgage rates saw the downward trend resume in the week ending 21st May, delivering a 5th weekly decline in 9-weeks.

30-Year fixed rates fell by 4 basis points to 3.24%. In the previous week, mortgage rates had risen by 2 basis points to 3.28%.

The pullback left mortgage rates close to an all-time low in the week.

Compared to this time last year, 30-year fixed rates were down by 82 basis points.

30-year fixed rates were also down by 170 basis points since November 2018’s most recent peak of 4.94%.

Economic Data from the Week

Economic data was on the lighter side in the 1st half of the week. May’s prelim private sector PMIs, the Philly FED Manufacturing PMI, and the weekly jobless claims were in focus.

While private-sector numbers showed a slower pace of contraction, it was the weekly jobless claims that raised another red flag.

Initial jobless claims jumped by 2.438m in the week ending 15th May. The markets had hoped for a marked decline in response to an easing in lockdown measures.

On the monetary policy front, FED Chair Powell delivered a speech ahead of the week, while also giving testimony to lawmakers.

The FED Chair assured the markets that the FED had plenty of ammo to support the economic recovery late on Sunday. On Tuesday, the FED Chair did predict, however, that the economy would not fully recover until the end of 2021.

On Wednesday, the FOMC meeting minutes provided few surprises. The markets expect that monetary policy will see further easing before any tightening.

Of less influence in the week were housing sector numbers for April.

Building permits and housing starts slid by 20.8% and by 30.2% in April, month-on-month. Existing home sales also took a hit, with a 17.8% slide. The dire numbers came as lockdown measures hit housing sector activity in the month.

Since then, a pickup in purchase activity has been evident, limiting the effect of the numbers in the week.

On the geopolitical front, however, rising tensions between the U.S and China did provide some support for U.S Treasuries.

Concerns over the economic outlook and the FED’s somber assessment ultimately delivered the downside in rates.

Freddie Mac Rates

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

  • 30-year fixed rates fell by 4 basis points to 3.24% in the week. Rates were down from 4.06% from a year ago. The average fee remained unchanged at 0.7 points.
  • 15-year fixed declined by 2 basis point to 2.70% in the week. Rates were down from 3.51% compared with a year ago. The average fee also remained unchanged at 0.7 points.
  • 5-year fixed rates decreased by 1 basis point to 3.17% in the week. Rates were down by 51 points from last year’s 3.68%. The average fee increased from 0.3 points to 0.4 points.

According to Freddie Mac, mortgage rates remained at sub-3.30% for a 4th consecutive week. The downward bias supported a jump in buyer demand, as lockdown measures fell away. Freddie Mac noted that purchase demand improved at a remarkably fast pace, leaving purchase demand flat compared to a year ago.

It was also noted that going forward, mortgage rates have room to decline as mortgage spreads remain elevated.

Mortgage Bankers’ Association Rates

For the week ending 15th May, rates were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, increased from 3.37 to 3.46%. Points increased from 0.21 to 0.33 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances decreased from 3.43% to 3.41%. Points increased from 0.29 to 0.33 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances decreased from 3.69% to 3.66. Points increased from 0.33 to 0.37 (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 2.6% in the week ending 15th May. In the week prior, the index had increased by 0.3%.

The Refinance Index fell by 6% from the previous week and was up by 160% from the same week one year ago. In the previous week, the Refinance Index had declined by 3%.

The refinance share of mortgage activity slipped from 67.0% to 64.3% of total applications in the week. In the week prior, the share had fallen from 70.0% to 67.0% of total applications.

According to the MBA:

  • Applications for home purchases continued to recover after April’s slide, with activity rising for a 5th consecutive week.
  • Purchase activity, which was 35% below a year-ago levels 6-weeks ago, was down by just 1.5%.
  • Despite mortgage rates remaining close to record-lows, refinance activity fell to its lowest level in over a month. A retreat in cash-out refinance lending contributed as credit conditions tightened.
  • The MBA is expecting the low mortgage rate environment to support refinance activity over the remainder of the year, however.

For the week ahead

It’s a relatively quiet start to the week for the Greenback.

After Monday’s public holiday, consumer confidence figures for May on Tuesday and the weekly jobless claims on Thursday will be the key drivers.

We would expect the housing sector numbers and durable goods orders for April to have a muted impact on the yields.

Rising tensions between the U.S and China, however, could deliver further demand for U.S Treasuries in the week.

The markets will also need to monitor the COVID-19 numbers. As lockdown measures ease, governments will want to avoid a spike in new cases that would cause a review of easing plans.