For sale sign in front of large USA home

U.S Mortgage Rates Start the Year with Another Record Low

Mortgage rates failed to fall to an 18th record low in the current downtrend, with 30-year fixed rates on the decline in the first week of the year.

Compared to this time last year, 30-year fixed rates were down by 99 basis points.

30-year fixed rates were also down by 229 basis points since November 2018’s most recent peak of 4.94%.

Economic Data from the Week

Economic data was on the busier side in the 1st half of the week.

Private sector PMI figures were in focus along with labor market numbers.

It was a mixed set of numbers. While there was a pickup in private sector activity, employment figures disappointed.

In December, the ISM Manufacturing PMI increased from 57.5 to 60.7, while nonfarm employment fell by 123k according to the ADP.

Factory orders were also positive, however, rising by 1% in November, supporting the pickup in manufacturing sector activity in December.

Freddie Mac Rates

The weekly average rates for new mortgages as of 7th January were quoted by Freddie Mac to be:

  • 30-year fixed rates fell by 2 basis points to 2.65% in the week. This time last year, rates stood at 3.66%. The average fee remained steady at 0.7 points.
  • 15-year fixed rates fell by 1 basis point to 2.16% in the week. Rates were down by 91 basis points from 3.07% a year ago. The average fee slipped from 0.7 points to 0.6 points.
  • 5-year fixed rates rose by 4 basis points to 2.75%. Rates were down by 55 points from 3.30% a year ago. The average fee fell from 0.4 points to 0.3 points.

According to Freddie Mac,

  • A new year, a new record low.
  • Despite a full percentage point decline in rates over the past year, housing affordability has decreased.
  • Record low mortgage rates have been offset by rising house prices.
  • Rates are poised to rise modestly this year, as the forces behind the decline in the drop in mortgage rates have shifted.
  • The rise in mortgage rates and rising house prices will accelerate the decline in affordability.

Mortgage Bankers’ Association Rates

For the week ending 1st January, the rates were:

  • Average interest rates for 30-year fixed to conforming loan balances decreased from 2.90% to 2.86%. Points increased from 0.31 to 0.35 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances decreased from 3.09% to 3.08%. Points increased from 0.30 to 0.32 (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, slid by 4.2% in the week ending 1st January. In the week ending 18th December, the Index had increased by 0.8%.

The Refinance Index fell by 6% and was 100% higher than the same week a year ago. In the week prior, the index had risen by 4%.

According to the MBA,

  • Mortgage rates started the year close to record lows, most notably with the 30-year fixed rate at 2.86%.
  • Record-low rates for fixed-rate mortgages is good news for borrowers looking to refinance or buy a home, as around 98% of all applications are for fixed-rate loans.
  • Despite these low rates, overall application activity fell sharply during the holiday period, which is typical every year.
  • The steady demand for home buying throughout most of 2020 should continue in 2021.
  • MBA is forecasting for purchase originations to rise to $1.59 trillion this year – an all-time high.

For the week ahead

It’s a relatively quiet first half of the week on the U.S economic calendar.

Key stats include JOLTs job openings for November and December inflation figures.

Expect inflation figures to influence along with last week’s nonfarm payroll and jobless claims figures.

Away from the economic calendar, U.S politics and COVID-19 news will remain in focus.