U.S Mortgage Rates Up Again, Making It 15 Weekly Rises this Year!

Mortgage rates were on the rise once more, with rates hitting 4.66%, the highest level since May 2011’s 4.71%, according to figures released by Freddie Mac, the upward trend reported to have been the most sustained rise in rates in over 40-years. According to Freddie Mac, rates have risen in 15 of the first 21 weeks of the current year, the share of weekly rises the highest since 1972.

The sustained rise in mortgage rates through the year will have contributed to the slump in U.S home sales, with new home sales falling by 1.5% in April, reversing March’s 2% rise and existing home sales sliding by 2.5%, more than reversing March’s 1.1% rise, according to figures released last week.

While inventories have been the main driver for the housing market, the current year’s upward trend in mortgage rates may well see existing home owners opt out of moving homes, the persistent rise in borrowing costs now a material factor in the decision making process, household disposable incomes likely to be impacted, as inflationary pressures also hit consumer prices.

Tight labour market conditions may provide support for those looking to climb onto the property ladder, even with as much as a 1% rise in mortgage rates over the last year, though with home owners with fixed mortgage rates likely to pull properties from the market, the combination of rising borrowing costs and rising house prices is likely to have started to cause some pain and was reflected in the latest mortgage application figures.

Freddie Mac weekly average rates for new mortgages as of 24th May were quoted to be:

  • 30-year fixed rate loan rose from 4.61% to 4.66% last week to the highest level since 5th May 2011, while up from 3.95% a year ago.
  • 15-year fixed rates jumped from 4.08% to 4.15% last week, while up from 3.19% from a year ago.
  • 5-year fixed rates rose from 3.82% to 3.87% over the week, while up from last year’s 3.07%.

Mortgage Bankers’ Association Rates for the week ending 11th May were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA jumped from 4.78% to 4.90%, hitting the highest level since May-11.
  • Average interest rate for 30-year fixed with conforming loan balances rose from 4.77% to $4.86%.
  • Average 30-year rates for jumbo loan balances rise from 4.73% to 4.81%, reaching its highest level since Sep-13.

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%, following the previous week’s 2.7% fall week-on-week. The fall coming off the back of the continued uptrend in mortgage rates, while supply will also have been an issue.

The Refinance Index also fell, down 4% to its lowest level since Dec-2000, following the previous week’s 4% fall, with the refinance share of mortgage activity falling further to 35.7% of total applications, the lowest level since 2008 and down from the previous week’s 35.9%, as the downward trend continues.

For the week ahead, U.S economic data including consumer confidence, 3rd estimate GDP numbers, personal spending, Core PCE Price Index figures, nonfarm payrolls and wage growth will be in focus, with positive numbers likely to drive mortgage rates up further through the week.

Consumer confidence, inflation and wage growth will certainly be relevant for the U.S housing sector and outlook for mortgage applications, a pickup in wage growth and relatively steady inflation expected to support demand for housing, though consumer confidence will need to remain at current levels, any concerns over the outlook for growth likely to weigh on both applications and mortgage rates through the week.

Good news for home owners was Trump’s talk of further tax cuts, though the wealthier are going to take a hit with a cut in tax relief from interest on home mortgages in the coming years hitting higher income earners, the tax reform bill reducing the amount that home owners will be able to deduct interest on from $1m of mortgage debt to $750 of mortgage debt.

Improved economic indicators continue to suggest that the upward trend in U.S mortgage rates will continue, though with geo-political risk becoming an ever present feature, there may be some respite in mortgage rates this coming week, with concerns over North Korea, a U.S – China trade war, Iran and NAFTA there for consideration.