U.S Mortgage Rates Pause, but Upward Trend Set to Continue

The recent upward trend in mortgage rates and a downward trend in applications has yet to show any signs of influencing the housing sector, with demand continuing to outstrip supply, supported by a continued tightening in the labor market, though another month of disappointing wage growth figures will be of concern.

Questions will likely begin to circulate on whether mortgage rates at current levels are going to impact the demand side, a softening in demand the near-term risk for the sector. Rising mortgage rates will certainly have an impact, particularly if wage growth doesn’t keep up with inflation.

Freddie Mac rates for new mortgages for the week ending 2nd May were quoted to be:

  • 30-year fixed rate loan eased from 4.58% to 4.55% last week, while up from 4.02% a year ago.
  • 15-year fixed rates rose from 4.02% to 4.03% last week, while up from 3.27% from a year ago.
  • 5-year fixed rates slipped from 3.74% to 3.69% over the week, while up from last year’s 3.13%.

Mortgage Bankers’ Association Rates for last week were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA increased from 4.71% to 4.81%, hitting the highest level since Jul-11.
  • The average interest rate for 30-year fixed with conforming loan balances rose from 4.73% to $4.80%, hitting the highest level since Sept-13.
  • Average 30-year rates for jumbo loan balances jumped from 4.64% to 4.69%, hitting the 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 2.5%, following the previous week’s 0.2% fall week-on-week. The fall coming off the back of the late April jump in mortgage rates, driven by a build-up in inflationary pressures.

The Refinance Index also fell, down 4%, following the previous week’s 0.3% fall, with the refinance share of mortgage activity falling further to 36.5% of total applications, the lowest level since Sep-08 and down from the previous week’s 37.2%, the downward trend continuing.

With loan rates hitting levels not seen since 2013, the fall in applications was certainly not a surprise, this week’s marginal decline in mortgage rates providing prospective homeowners with some respite but little relief from the moves over the last few months.

Economic data released through the week continued to support the sentiment towards a pickup in inflationary pressures that saw 10-year Treasury yields hit 3% to drive mortgage rates too late 2013 levels the previous week.

March’s core CPE price index rose by 1.9% year-on-year, providing further cause to expect a more hawkish FED and more aggressive rate path through the second half of the year, while weaker service sector activity going into the 2nd quarter and softer wage growth figures pinned back Treasury yields through the middle of the week. Wage growth will continue to be the area of focus near-term, the unemployment rate now down at 3.9%, soft wage growth reason for the FED to hold off talk of a more aggressive rate path.


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Adding to the downward pressure on 10-year Treasury yields was May’s FOMC Statement released on Wednesday, which held back from committing to a more aggressive rate path while acknowledging that inflation had moved towards the 2% objective.

10-year Treasury yields closed out the week at 2.95%, up 18 basis points over the last month, with April’s weak nonfarm payroll and wage growth figures providing little relief on sentiment towards monetary policy, which will continue to drive mortgage rates northwards.

The U.S administration’s lack of progress on trade talks with China will raise some concerns in the coming week, with economic data out of the U.S in the week ahead including April’s consumer price index numbers that will play a hand in yields through the week.

Negative chatter on trade could see Treasury yields pullback to provide some more respite, though Trump could take a softer stance on the basis that talks are planned to continue, the upward trend in yields expected to resume barring an economic meltdown.

The outlook on borrowing costs remains unchanged, the upward trend expected to add further pressure on disposable incomes in high debt households when factoring in the recent pickup in consumer prices.

Reducing debt levels would offset the upward trend in mortgage rates, with the continued tightening in the labor market expected to place further upward pressure on wages should economic conditions remain favorable, the combination of which will likely continue skewing the housing sector in favor of homeowners.

U.S Mortgage Rates Surge to 4-Year Highs

A jump in 10-year U.S Treasury yields to 3% off the back of a continued build-up of inflationary pressure from rising commodity prices and increasing expectations of a 4th rate hike for the year, saw 30-year fixed-rate mortgages jump 11 basis points to 4.58%, the highest level since August 2013

Economic data through the week eased concerns over the U.S economy entering an extended soft path, with both service and manufacturing sector activity picking up at the start of the 2nd quarter, the weekly jobless claims hitting levels not seen since the late 1960s and the U.S trade balance seeing a sizeable narrowing in March. With consumer confidence coming in ahead of expectations and recovering from a fall in March, the outlook for consumer spending also looks positive and favoring the outlook for the economy and inflation.

The continued rise in commodity prices, which has seen the Bloomberg Commodity Index gain 2.33% for the current month and the rise in crude oil prices, WTI up 12.5% year-to-date, has added to the upbeat sentiment towards inflation that has seen the markets increasingly price in a 4th rate hike for the year.

In spite of the continued upward trend in mortgage rates, demand for mortgages has certainly not eased, with an ever-tightening labour market and pickup in the pace of wage growth driving new home sales at the end of the 1st quarter, new up sales up 4% in March, off the back of a 3.6% rise in February.

While a shortage of inventory continues to be an issue, existing home sales were also on the rise in March, up 1.1%, following a 3% rise in February, home buyers undeterred by 30-year fixed mortgage rates having risen by an average 55 basis points over the last year, current levels still considered attractive when compared with historical rates.

The rise in sales will continue to add upward pressure on house prices that, when combined with the upward trend on mortgage rates, will weigh on the pockets of prospective home buyers and influence the decision making process.

Freddie Mac rates for new mortgages last week were quoted to be:

  • 30-year fixed rate loan jumped from 4.47% to 4.58% last week, while up from 4.03% a year ago.
  • 15-year fixed rates rose from 3.94% to 4.02% last week, while up from 3.27% from a year ago.
  • 5-year fixed rates increased from 3.67% to 3.74% over the week, while up from last year’s 3.12%.

Mortgage Bankers’ Association Rates for last week were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA increased from 4.70% to 4.71%, continuing to move back towards the 7-year high hit last month.
  • The average interest rate for 30-year fixed with conforming loan balances rose from 4.66% to $4.73%, hitting the highest level since Sept-13.
  • Average 30-year rates for jumbo loan balances jumped from 4.53% to 4.64%, hitting the highest level since Jan-14.

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 0.2%, following the previous week’s 4.9% rise week-on-week. The marginal decline considered negligible when factoring in the upward trend in mortgage rates, supporting the positive March existing and new home sales figures released last week.

The Refinance Index also fell, down 0.3%, following the previous week’s 4% rise, with the refinance share of mortgage activity falling further to 37.2% of total applications, the lowest level since Sep-08 and down from the previous week’s 37.6%, the downward trend continuing.

The dilemma for prospective home buyers continues to become ever more challenging, with last week’s surge a warning of how quickly rates can move as sentiment towards inflation shifts, the lack of inflationary pressure having pinned back mortgage rates in recent years.

Recent economic data has eased concerns over the U.S economy and, with the talk of a trade war easing, it could be full steam ahead for the U.S economy in the 2nd quarter. Friday’s GDP numbers out of the U.S were better than expected and, with the U.S economy tending to fare better as the year progresses, 2.3% growth is certainly not a bad baseline going into the 2nd quarter, all of which continues to support the upward trend in borrowing costs. It’s not just mortgages that are getting hit, but also other borrowing costs, making it advisable to pay down loans and credit cards sooner rather than later in order to minimize the impact of rising borrowing costs on disposable incomes.

For the week ahead, it’s another hectic economic calendar, with inflation, personal spending and private sector PMI numbers scheduled for release ahead of the all-important nonfarm payroll and wage growth figures on Friday. The FED will also be making its May monetary policy decision on Wednesday and, while few are expecting rates to be raised, the FOMC statement will likely have an influence, positive economic data and a likely rise in inflation supporting a more hawkish statement.

All things considered, mortgage rates could well be on the rise again in the coming week, though the Oval Office is more than capable of overshadowing the FED and economic data should the need arise.

U.S Mortgage Rates See Largest Increase since February

A build up in inflationary pressures, reflected in the Beige Book and conveyed by some relatively hawkish FOMC member chatter saw 10-year Treasury yields hit the highest level in 4-weeks, driving the 30-year fixed-rate mortgage average to 4.47%, the highest since Jan-14.

There may have been a soft patch in the economy through the 1st quarter, but last week’s economic data suggested that it was just a soft patch and nothing more concerning, with retail sales bouncing back at the end of the quarter.

For now, the acceleration in the pace of wage growth should avoid a material decline in mortgage applications, though a tightening in the approval process will have some influence should mortgage rates continue to move towards 5%.

The continued demand for homes will provide further support to the housing sector, with the impact of limited supply and rising mortgage rates likely to ultimately see a shift in the housing sector and demand for mortgage applications and new homes. We’re not there yet, however, with mortgage rates still well below historical averages, but it will become an issue should the upward trend in mortgage rates persist in the coming weeks.

Freddie Mac rates for new mortgages last week were quoted to be:

  • 30-year fixed rate loan rose from 4.42% to 4.47% last week, while up from 3.97% a year ago.
  • 15-year fixed rates jumped from 3.87% to 3.94% last week, while up from 3.23% from a year ago.
  • 5-year fixed rates increased from 3.61% to 3.67% over the week, while up from last year’s 3.10%.

Average interest rates for 30-year fixed, backed by the FHA increased from 4.66% to $4.70%, moving back towards the 7-year high hit last month, while the average interest rate for 30-year fixed with conforming loan balances remained unchanged at 4.66%, continuing to move around a 4-year high. 30-year rates for jumbo loan balances held steady at 4.53%, following the previous week’s fall.

Weekly figures released by the Mortgage Bankers Association showed that the Market Composite Index, which is a measure of mortgage loan application volume, increased by 4.9% week-on-week, more than reversing the previous week’s 1.9% fall.

The Refinance Index was also on the rise, up 4% from the previous week, reversing the previous week’s 2% fall and bringing to an end the recent downward trend that contributed to the refinance share of mortgage activity hitting the lowest level since Sept-08.

In spite of the rise in the Refinance Index, the refinance share of mortgage activity fell from 38.4% to 37.6% of total applications, continuing to sit at the lowest level since Sept-08.

While a recent decline in mortgage rates has drawn in some refinancing, new mortgage applications were the prime beneficiary, as home buyers continued to complete applications ahead of a next rate hike by the FED and the prospects of rising inflationary pressures that would hit 10-year U.S Treasuries.

Following the latest weekly jump in mortgage rates, home buyers will face a difficult question, with concerns over a more aggressive rate path and a degree of uncertainty in the economic outlook for the year there to consider and that’s before the possible impact of trade tariffs on the U.S economy.

1st quarter growth has a tendency to slow, with the U.S economy tending to see momentum build through the year. How much slower growth was in the 1st quarter will be of influence in the coming weeks, with 1st quarter 1st estimate GDP numbers scheduled for released on Friday.

Ahead of the GDP numbers, economic data includes consumer confidence, private sector PMI and durable goods orders. The markets will be looking for consumer confidence to remain at current levels, with private sector activity to also rise, though input and output price inflation across the private sector will also get plenty of attention in the early part of the week, any uptick supporting Treasury yields.

On top of the economic data, FOMC member chatter will also be of influence, FOMC members seemingly accepting the need for an additional 3 rate hikes for the current year, though much will depend on the effect of trade tariffs and noise from the Oval Office, the U.S President more than capable of rocking the boat.

U.S Mortgage Rates – Mixed but Look Ready to Rise Again

While economic data was on the lighter side, the annual rate of baseline inflation accelerated to 2.1% in March, with headline inflation also jumping. The combination of the pickup in the rate of inflation, coupled with the FOMC meeting minutes that portrayed a more hawkish than anticipated Committee was enough to suggest that the new Chair is willing and able to take a more aggressive path on policy to protect the economy.

With the stats indicating that mortgage rates may soon resume their upward trend, the rhetoric between China and the U.S also improved through the week, easing immediate fears of a trade war, with the U.S President even suggesting a willingness to re-enter TPP talks. A missile strike on Syria and some jitters over peace in the Middle East and Russia’s involvement in Syria will be of some influence in the week ahead, but if the data stacks up and FOMC member chatter talks up the need to manage inflation, it could be the week that mortgage rates make a move.

Freddie Mac rates for new mortgages last week were quoted to be:

  • 30-year fixed rate loan rose from 4.40% to 4.42% last week, while up from 4.08% a year ago.
  • 15-year fixed rates held steady at 3.87% last week, while up from 3.34% from a year ago.
  • 5-year fixed rates slipped from 3.62% to 3.61% over the week, while up from last year’s 3.18%.

Average interest rates for 30-year fixed, backed by the FHA slipped from 4.74% to 4.66%, easing back from the almost 7-year high hit last month, while the average interest rate for 30-year fixed with conforming loan balances slipped from 4.69% to 4.66%, continuing to move around a 4-year high. 30-year rates for jumbo loan balances slipped from 4.56% to 4.53%.

According to the weekly figures released by the Mortgage Bankers Association, the Market Composite Index, which is a measure of mortgage loan application volume, fell by 1.9% week-on-week, following the previous week’s 3.3% decline. The Refinance Index fell by a further 2%, following the previous week’s 5% slide, to take the refinance share of mortgage activity to 38.4%, the lowest since Sept-08.

Refinance mortgage activity has certainly been on the decline and falling at a greater pace than mortgage applications, with refinance mortgage activity has been on the rise last year, in a more rate friendly environment, the FED has been talking about a shift in policy for some time supported by a robust U.S economy.

While refinance mortgages saw a large fall in recent weeks, the MBA also released March figures for its Builder Application Survey that showed mortgage applications for new home purchases falling by 2.6% compared with March 2017, while up 14% month-on-month, to make it a third consecutive month-on-month rise in applications for new home mortgages.

The increase in applications for mortgages for new homes is in line with the seasonal shift, with the spring considered peak season for new home buyers, though tightening credit terms and inventory numbers will continue to have an influence on the total number of mortgage applications, which have been on a downward trend of late.

Good news for home buyers is that there has been a pickup in wage growth and, while March’s nonfarm payroll numbers were weak, the general trend in the labor market remains positive for home buyers, with mortgage rates still considered favorable when compared with historical numbers.

Last week’s March inflation figures have reflected a pickup in inflationary pressure and, with the FED’s more hawkish than expected FOMC meeting minutes released last Wednesday, the recent hovering of mortgage rates at around current levels may come to an end, with another jump likely, particularly should inflationary pressures continue to build.

The more inflationary pressure, the more aggressive the FED will have to be and that’s going to mean a more marked pickup in mortgage rates in the coming months.

For the week ahead, on the economic data front, March retail sales figures will be of particular interest, as will the latest set of building permit and housing start numbers, with some manufacturing PMI numbers and FOMC member chatter for the markets to also contend with.

Some recent economic indicators have been on the softer side, easing some pressure on yields, while the threat of a trade war with China and the missile strikes on Syria will have further implications, both factors that the market and the FED will need to consider through the week that could lead to near-term downward on mortgage rates in the event that either or both escalate.

U.S Mortgage Rates – Down for a 2nd Week

Adding to the downside for Treasury yields was some disappointing economic data out of the U.S, with manufacturing and service sector PMI numbers showing slower growth at the end of the 1st quarter, suggesting that a 4th rate hike for the year may be over-bullish unless the economy accelerates through the early part of the 2nd quarter, with inflation continuing to sit shy of the FED’s 2% target.

The recent softening in mortgage rates has been relatively minor, however, when looking at the year-on-year increase, though the uptick in mortgage rates have had limited impact on applications and on the demand side that continues to weigh on the housing supply in the U.S.

How China and the U.S resolve the current trade dispute will be of particular influence to housing demand and for mortgage applications. China’s tariffs are far more punitive than that of the U.S, farming, and manufacturing likely to take a sizeable hit if China goes through with its threat. The longer any tariffs are imposed the worse it would be for the U.S economy and ultimately the housing sector, though mortgage rates would likely also ease further in such an event.

For now, sentiment has shifted, with both sides stating that there is no trade war, suggesting that the recent moves have been nothing more than a muscle flexing exercise.

A resolution to the current dispute would likely see mortgage rates begin to climb, though following March’s nonfarm payroll figures released on Friday, doubts over a 4th rate hike may linger, in spite of the jump in wage growth that would be far more influential when considering the current unemployment rate.

Freddie Mac rates for new mortgages last week were quoted to be:

  • 30-year fixed rate loan slipped to from 4.44% to 4.40% last week, while up from 4.1% a year ago.
  • 15-year fixed rates fell from 3.90% to 3.87%, while up from 3.36% from a year ago.
  • 5-year fixed rates stood at 3.62%, down from the previous week’s 3.66%, while up from last year’s 3.14%.

Average interest rates for 30-year fixed, backed by the FHA eased from 4.75% to 4.74%, moving back from the almost 7-year high hit earlier in the month, while the average interest rate for 30-year fixed with conforming loan balances remained steady at 4.69% to hold at a 4-year high. 30-year rates for jumbo loan balances slipped from 4.6% to 4.56% following a 5 basis point rise last week.

The slide in mortgage rates will ease some of the pressure on those looking to get on the property ladder, though the continued rise in demand for housing places further pressure on U.S house prices near-term that will likely continue to be the biggest hurdle for those looking to purchase.

March’s wage growth figures and signs of a possible shortage of skilled workers could finally begin to offset the recent increases in mortgage rates, however, which should east some of the pressure coming from the direction of the real estate market and support demand for U.S mortgage applications.

According to figures released by the Mortgage Bankers Association, the Market Composite Index, a measure of mortgage loan application volume, fell by 3.3% week-on-week, with the Refinance Index falling 5% from the previous week.

The larger fall in the Refinance Index saw the refinance share of mortgage applications fall to the lowest level since September 2008, refinances accounting for 38.5% of total applications, down from the previous week’s 39.4%.

In spite of the weekly fall in mortgage applications, mortgage applications were up 5% over the last 12-months, the rise in applications coming in spite of the uptick in mortgage rates, with a tightening labor market and rising wages supporting demand through the last 12-months.

While applications were up, the MBA also reported a fall in mortgage credit availability in March, with the Mortgage Credit Availability Index (MCAI) falling 1.5% to 177.9. A fall in the MCAI is indicative of a tightening in lending standards. The Government MCAI also fell, down 2.1% in March, the numbers aligned with the upward trend in mortgage rates leading to the need to tighten lending standards in recent months.

For the week ahead, inflation figures out of the U.S on Wednesday along with the release of the FOMC meeting minutes will influence Treasury yields and mortgage rates, with trade war chatter another factor to be considered, the recent downtrend in mortgage rates likely to be tested should Trump back off on trade tariffs and inflation figures come in ahead of expectations.

Last week’s wage growth figures would certainly support a pick-up in inflation in the coming months, assuming that are no economic speed bumps along the way, with trade tariffs another inflation driver should the U.S administration act on its recent threats.

U.S Mortgage Rates Hold Steady for Now

The Chinese government reportedly discussing trade terms with the U.S administration following the introduction of steel and aluminum tariffs and the more than $50bn in tariffs on Chinese goods to the U.S.

Economic growth in the U.S has seen the unemployment rate tumble over the last 24-months and, while this is certainly a positive for home buyers, missing out on the final piece of the labor market jigsaw, wage growth, would be both a negative for the economy in general and for the real estate sector.

Recovery in the U.S and globally has been a long and slow one, with even the FED considered to still be highly accommodative, despite the recent rate hikes, with the lack of wage growth not only impacting household disposable incomes and saving rates, but also purchasing power for those looking to get on to the property ladder.

While mortgage rates reversed in the week ending 28th March, a trade war with China would not only hit China but also the U.S economy and undoubtedly labour market conditions, so it was of little surprise that U.S 10-year Treasury yields slid back to an end of quarter 2.74%, easing upward pressure on mortgage rates that closely follow 10-year yields.

Mortgage rates have not seen similar declines to that of 10-year Treasury yields, however, which have eased back from close to 3%, with the markets even ignoring an uptick in the FED’s preferred Core PCE Price Index figures, year-on-year, last week.

Other stats released through the week that would be considered relevant included the weekly jobless claims figures that continued to reflect an ever-tightening labour market, a jump in U.S pending home sales in February, the 3.1% rise adding further pressure on inventories, with S&P / CS Composite House Price Index of the 20 most major metropolitan areas of the U.S rising by 6.4%, reflecting the real estate market environment that prospective home buyers are facing.

Rising mortgage rates and house prices, inventory shortages, an uptick in inflation and tepid wage growth are certainly not what the doctor ordered for those on the hunt for their dream home.

Freddie Mac rates for new mortgages last week were quoted to be:

  • 30-year fixed rate loan slipped to from 4.45% to 4.44% last week, while up from 4.14% a year ago.
  • 15-year fixed rates fell from 3.91% to 3.90%, while up from 3.39% from a year ago.
  • 5-year fixed rates stood at 3.66%, down from the previous week’s 3.68%, while up from last year’s 3.18%.

Average interest rates for 30-year fixed, backed by the FHA increased from 4.69% to 4.75%, moving back towards the almost 7-year high hit earlier in the month, while the average interest rate for 30-year fixed with conforming loan balances reversed the previous week’s fall, rising from 4.68% to 4.69% and back to a 4-year high. 30-year rates for jumbo loan balances jumped from 4.55% to 4.6% following a hold the previous week.

Last week’s 1 basis point decrease in 30-year fixed mortgage rates was certainly not too bad an outcome for home buyers deciding to get moving, though the reality remains that even with 10-year Treasury yields seeing a marked decline, the fall in mortgage rates was just a reversal of the previous week’s minor gains and unlikely to make an impact on purchasing power and household disposable incomes.

According to figures released by the Mortgage Bankers’ Association, mortgage loan application volume surged by 4.8% on a seasonally adjusted basis, in the week ending 23rd March, more than reversing the previous week’s 1.1% fall. The Refinance Index jumped by 7%, also more than reversing the previous week’s 5% fall, leading to refinance share of total applications rising to 39.4% from the previous week’s 38.5%, which had been at the lowest level since Sep-08.

While prospective home buyers will be viewing recent moves as a sign that the recent upward move in mortgage rates may have topped out, the week ahead may suggest otherwise, with economic data scheduled out of the U.S including March’s nonfarm payroll and wage growth figures.

Any unexpected jump in wage growth, supported by another set of decent payroll figures and that 4th rate hike just may see itself penciled in by the markets and that would certainly give mortgage rates a nudge towards the much talked about 5%.

The conclusion should ultimately be that, barring any material economic slowdown, the path of least resistance for mortgage rates remains upwards and the latest bounce in refinance rates suggests that expectations are for another bounce in mortgage rates to materialize in the coming weeks.

Bad news for prospective home buyers is that the rise in refinances also suggests that existing home contributions to inventory numbers are unlikely to improve anytime soon, which will add further upward pressure on house prices.

U.S Mortgage Rates – Onwards and Upwards

That was another week to remember in the financial markets and for prospective home buyers, with the FED making its much anticipated March rate hike, while President Trump roiled the markets with the introduction of, not only tariffs on steel and aluminium imports into the U.S but also a $50bn tariff on Chinese goods bound for the U.S.

For prospective home buyers, the fact that the FED held on to its 3 rate hike projection for the year, coupled with an improved outlook towards the U.S economy was certainly a positive and may have been a favourable near-term outcome, all things considered, but there may be trouble ahead should economic conditions continue to remain favourable.

10-year Treasury yields would have certainly had a different movement through the week, if the market panic over the prospects of a trade war hadn’t developed in response to Trump’s tariffs, the markets jumping into the safety of U.S Treasuries through the 2nd half of the week.

Assuming that a trade war is averted, economic data out of the U.S last week was relatively upbeat and could well push the FED to take a more aggressive path towards policy normalization.

It’s also worth noting that, while 10-year Treasury yields have been on a downward trend in recent weeks, the upward trend in mortgage rates has resumed. 10-year Treasury yields ended last week at 2.81%, down from the previous week’s 2.84% and the week prior’s 2.89%.

Freddie Mac rates for new mortgages last week were quoted to be:

  • 30-year fixed rate loan rose to from 4.44% to 4.45% last week, while up from 4.23% a year ago.
  • 15-year fixed rates rose from 3.90% to 3.91%, while up from 3.44% from a year ago.
  • 5-year fixed rates stood at 3.68%, up from the previous week’s 3.67% and from last year’s 3.24%.

Average interest rates for 30-year fixed, backed by the FHA decreased from 4.73% to 4.69%, pulling back from last week’s almost 7-year high, while the average interest rate for 30-year fixed with conforming loan balances decreased from 4.69% to 4.68%, sitting just shy of last week’s 4-year high. 30-year rates for jumbo loan balances held steady at 4.55%, following last week’s 0.1 percentage point drop.

Last week’s 1 basis point increase in 30-year fixed mortgage rates was certainly not too bad an outcome for home buyers deciding to get moving, with the upward trend resuming following last week’s fall in rates.

Till now, the upward trend in mortgage rates has failed to deter home buyers from jumping into the property market, with existing home sales rising by 3% in February, according to figures released last week. The increase offset January’s 3.2% fall, taking existing home sales to 5.54m on an annualized basis.

The numbers continue to suggest that there is no shortage of buyers at current levels, while inventories remain an issue for the real estate sector and for those looking.

According to the latest figures from the Mortgage Bankers’ Association, the Market Composite Index, which is a measure of mortgage loan application volume, fell by 1.1% in the week ending 16th March, with the Refinance Index sliding by 5% from the previous week.

The slide in the Refinance Index left the refinance share of mortgage activity at just 38.5%, down from the previous week’s 40.1% to the lowest level since Sep-08.

Homeowners looked to have got it right this time around, with the FED’s forward guidance on monetary policy and improving labor market and economic conditions, amidst a low inflationary environment providing the most favorable conditions for homeowners looking to refinance and obtain better rates before the mortgage rate environment takes a steeper path to normalization. Fixed rates are certainly the way forward when looking ahead to next year and 2020.

For those looking to purchase a home, while the FED held it’s 3 rate hike projection for the current year, the June projections could paint a materially different picture should economic conditions continue to improve. If the FED does pencil in a 4th rate hike in the June projections, coupled with the already more hawkish rate paths for next year and for 2020, home buyers can expect mortgage rates to begin to make a move through 5% and they may even look to touch 6% in 2020.

There’s certainly enough reason to make the move sooner rather than later, particularly when considering the fact that mortgage rates have only declined once in the last eleven weeks.

For the week ahead, the FED’s preferred inflationary metric, Core PCE Price Index figures are scheduled for release on Thursday, which will certainly have an influence on yields and near-term sentiment towards both monetary policy and mortgage rates, though President Trump may pin back yields for another week, if the trade war chatter persists into Good Friday.

U.S Mortgage Rates – Down for the 1st Time in 10-weeks

That was quite a week for the financial markets and prospective home buyers will have some mixed feelings going into next week.

February Inflation figures released on Tuesday provided little evidence of a pickup in inflationary pressure, easing market panic over the prospects of a more aggressive FED, while yields slid through the week, as U.S President Trump wielded the axe, the latest victim being Rex Tillerson. Appointments of replacements for both Cohn and Tillerson raised some eyebrows and, while macroeconomic data released through the week was skewed to the positive, demand for Treasuries rose through the week, leaving 10-year Treasury yields at 2.84% by the end of the week, down 5 percentage points from the previous Friday’s 2.89% and U.S equity markets in the red again.

The effects of soft wage growth may be offset by the tax reform bill and a pause in the rise in mortgage rates may be positive, but with February’s building permits and housing starts falling by 5.7% and 7% respectively, inventory shortages are unlikely to reverse anytime soon.

Prelim March consumer sentiment figures, released on Friday continued to sit at 14-year highs, supported by a tight labor market, but the survey also revealed concerns of a fall in household income and a pickup in inflationary pressures, the combination of which would lead to even more home buyers being priced out of the market.

Freddie Mac rates for new mortgages last week were quoted to be:

  • 30-year fixed rates loan fell from 4.46% to 4.44% last week, while up from 4.30% a year ago.
  • 15-year fixed rates fell from 3.93% to 3.90%, while up from 3.50% from a year ago.
  • 5-year fixed rates stand at 3.67%, up from the previous week’s 3.63% and from last year’s 3.28%.

Average interest rates for 30-year fixed, backed by the FHA increased from 4.68% to 4.73%, the highest level since Jul-11, while the average interest rate for 30-year fixed with conforming loan balances increased from 4.65% to 4.69%, the highest level since January 2014. 30-year rates for jumbo loan balances in contrast, continued to fall, down from 4.56% to 4.55%.

Refinancing rates are currently as follows:

With 30-year fixed mortgage rates easing for the 1st time in 10-weeks, mortgage applications continued to rise in the week ending 9th March, up by 0.9% on an adjusted basis, according to the Mortgage Bankers’ Association, following the previous week’s 0.3% increase.

After the rise in refinance applications in the week ending 2nd March, refinance applications fell by 2% in the week ending 9th March. Refinance mortgage applications accounted for 40.1% of total applications in the week, which was down from the previous week’s 41.8%, to the lowest level since Sep-08.

With affordability continuing to be a key issue for those looking to buy new homes, the latest fall in mortgage rates may ultimately provide little comfort when considering the housing sector data that was released out of the U.S on Friday.

Supply and demand imbalances have continued to pressure house prices upwards and, while mortgage rates on an upward trend, the refinance mortgage numbers suggest that further declines in refinance mortgage are likely, while new mortgage applications will likely continue to rise near-term, though much will depend on the pace of the increase in mortgage rates and of course, how house prices and mortgage rates are impacted by a possible shift in monetary policy expectations.

The continued rise in new mortgage applications supports the negative outlook from an inventory prospective, which will continue to push home prices higher, until such time that new mortgage applications take a sizeable fall and begin to raise concerns of a slowdown in the real estate market.

This week’s FED monetary policy decision and the release of the FOMC’s economic projections, which coincide with new FED Chair Jerome Powell’s first policy press conference will also be of significant importance.

The FED Funds Futures have the probability of a rate hike in the coming week at 91.6%. Recent inflation and wage growth figures have led to expectations of a 4th rate hike being lowered, though there has been little commentary to counter or support the market’s view.

As we saw last week, it’s not just going to be down to the economic data or FED monetary policy and the economic projections in the coming week, with U.S President Trump’s reshuffling of his cabinet that has involved the ousting of key senior members of the administration, also a factor, alongside any further talk of punitive trade tariffs on China and other trade partners.

U.S Mortgage Rates – Up for a 9th Week in a Row

The mood across the financial markets improved last week, with the Dow Jones Industrial average reversing the previous week’s 3.05% fall, ending the week up 3.2%, as investor fear of a more aggressive rate path for the year ahead eased.

Market fears of a trade war persisted through the week, however, with Trump’s steel and aluminum trade tariffs being introduced on Thursday, though there was some relief with Canada and Mexico’s exclusion and talk of being flexible with other trading partners including Australia.

Time will tell how China and other trading partners including the EU respond to the tariffs, with the possibility of a trade war continuing to loom large going into the start of the week.

Economic data out of the U.S last week was on the positive side, with the mid-week ADP Employment change figures impressing ahead of the government figures released on Friday.

The good news for the equity markets and the bad news for prospective homeowners was Friday’s labor market numbers. While labor market conditions continued to tighten, with 313,000 jobs being added in February, wage growth slowed to just 0.1% from January’s 0.3%.

While the softer than expected wage growth figures eased the prospects of a 4th rate hike this year, the softer wage growth figures and the continued rise in mortgage rates continue to deliver bad news to those applying for mortgages.

10-year U.S Treasury yields continued to hover at the 2.9% level, ending the week at 2.89%, contributing to the upward move in mortgage rates for the week ending 8th March.

Freddie Mac rates for new mortgages last week were quoted to be:

  • 30-year fixed rate loan rose to from 4.43% to 4.46% last week and up from 4.21% a year ago.
  • 15-year fixed rates rising from 3.90% to 3.93% and from 3.44% from a year ago.
  • 5-year fixed rates stand at 3.63%, up from the previous week’s 3.62% and from last year’s 3.23%.

Average interest rates for 30-year fixed, backed by the FHA was unchanged at 4.68%, while the average interest rate for 30-year fixed with conforming loan balances increased from 4.64% to 4.65%, the highest level since January 2014. 30-year rates for jumbo loan balances, in contrast, continued to fall, down from 4.57% to 4.56%

Refinancing rates are currently as follows:

While 30-year fixed mortgage rates increased for a 9th consecutive week, mortgage applications continued to rise in the week ending 2nd March, with mortgage applications rising by 0.3% on an adjusted basis, according to the Mortgage Bankers’ Association, though the rise was significantly less than the previous week’s 2.7% increase.

Following the fall in refinance applications in the week ending 23rd February, refinance applications increased by 2% in the week ending 2nd March, supported by the previous week’s fall in refinance mortgage rates. Refinance mortgage applications accounted for 41% of total applications in the week, which was unchanged from the previous week, following a fall from 44.4%

The declining trend in jumbo loan rates has yet to be reflected in the overall trend seen in mortgage rates, but with 10-year Treasury yields ending the week at sub-2.9% levels and concerns over a pickup in inflation easing, mortgage rates may steady in the week ahead.

Affordability remains the key issue in the housing sector. A continued lack of inventory, which has supported the upward trend in house prices, coupled with the 9-week gain in mortgage rates, is not a great combination, with the pace of increase in new home builds unlikely to fill the gap near-term. The January slide in existing home sales and tumble in new home sales and pending home sales paint a bleak picture, with this week’s release of February building permits and housing starts likely to add further upward pressure on house prices, with forecasts pointing towards a fall.

The big test in the coming week will be February’s inflation figures that are scheduled for release on Tuesday. Core inflation is forecasted to ease from 0.3% to 0.2% month-on-month, with year-on-year core inflation forecasted to hold steady at 1.8%. Disappointing numbers should see Treasury yields pull back, easing some of the upward pressure on mortgage rates near-term.

It’s not just the stats that will influence, however, with any threat of a trade war from China or the EU likely to offset any fall in yields, with concerns over the impact of a trade war on the global economy likely to overshadow any upbeat sentiment towards current economic conditions.

U.S Mortgages Rates Up Again. That’s 8 Weeks in a Row

It was another tough week for the markets, with the Dow Jones Industrial Average sliding 3.05%, as the markets not only faced the prospects of a more hawkish FED, but also a U.S President intent on rocking the boat, by kicking off a trade war. The trade war comes off the back of a currency war that is already in full swing, which has left the Dollar in the red year-to-date in spite of the shift in sentiment towards monetary policy and rise in U.S Treasury yields.

In the week, FED Chair Jerome Powell’s testimony to Congress was in line with expectations for some, but for those looking to acquire a new home, the prospects of at least 4-rate hikes this year will need to be factored in when working out the financials.

The good news is that the U.S economic outlook remains upbeat and the FED has little interest in slowing down growth, which is not trailblazing by historical standards. The bad news is that the continued move towards monetary policy normalization is unlikely to shift into reverse anytime soon, which means that the low-interest rate environment enjoyed in recent years is coming to an end.

From the economic data released out of the U.S last week, new home sales slumped 7.8% in January, the slide coming off the back of a 7.6% fall in December. Added to that, pending home sales were also on the slide, down 4.7% in January, following December’s no change. It may be too early to suggest that the January numbers can be attributed to rising rates, but the continued rise in mortgage rates is certainly closing the door for many and that will ultimately impact the housing sector.

Affordability is a real issue and, while wage growth picked up in January, house prices have been rising at a more solid pace. A tightening labor market and inventory constraints in the housing sector have left the supply and demand curve in the favor of homeowners.

We could see scales begin to tip the other way should mortgage rates continue to rise and begin to approach 5% levels.

Freddie Mac rates for new mortgages last week were quoted to be:

  • 30-year fixed rate loan rose to from 4.40% to 4.43% last week and up from 4.10% a year ago.
  • 15-year fixed rates rising from 3.85% to 3.90% and from 3.32% from a year ago.
  • 5-year fixed rates stand at 3.62%, down from the previous week’s 3.65%, while up from last year’s 3.14%.

Average interest rates for 30-year fixed, backed by the FHA rose jumped from 4.58% to 4.68%, while the average interest rate for 30-year fixed with conforming loan balances was unchanged at 4.64%. 30-year rates for jumbo loan balances, in contrast, fell from 4.62% to 4.57%

Refinancing rates are currently as follows:

  • 30-year fixed to refinance rates slipped from 4.32% to 4.30%,
  • 15-year fixed to refinance rates fell from 3.73% to 3.69%.
  • 10-year fixed to refinance rates fell from 3.65% to 3.62%.

Interestingly, in spite of the softer pending and new home sales figures, coupled with the continued rise in interest rates, mortgage applications rose by 2.7% in the week ending 23rd February, seasonally adjusted. On an unadjusted basis, the MBA reported that the Market Composite Index, which is a measure of mortgage loan application numbers, fell by 6% week-on-week.

Despite the continued fall in refinance rates, the refinance share of total mortgage applications fell further in the week ending 23rd February, down from 44.4% to 41.8%. The continued fall is a reflection of last year’s increased activity in anticipation of rising rates through late last year and the first half of this year.

The fall in jumbo loan rates may provide hope that the upward trend in mortgage rates may be coming to an end. But, with rates linked to 10-year U.S Treasury yields, the week ahead is another busy one, which could see yields get another boost should the economic data impress.

Key stats scheduled for release in the week ahead include February’s nonfarm payroll and wage growth figures, 4th quarter unit labor cost numbers and service sector PMI numbers, with FOMC member chatter also there to consider.

Last week, we heard from voting member Dudley, who considered 4-rate hikes in a single year to still be gradual, so getting a sense of how other members define gradual will be of influence. As of last week, while the probability of a March rate hike sits close to 100%, the probability of 4 rate hikes this year is still relatively low, so how the economy, wage growth and inflation fare through the first half of the year will be material, as will the FED’s economic projections that are scheduled for release later this month.

U.S Mortgages Rates: Up for a 7th Week in a Row

The markets had another week of volatility, which needed a Friday rally in the Dow Jones, S&P500, and NASDAQ to end the week in positive territory.

While we saw the equity market fear of yields subside in the previous week rally, this was not the case last week and the release of the FED’s monetary policy meeting minutes from the January FOMC meeting certainly caused a stir.

From the minutes it was clear that members of the FOMC had upwardly revised their economic projections when considering economic indicators going into the end of January meeting, whilst also factoring in the Tax Reform Bill that hadn’t been considered in the December projections.

Coupling the minutes with January’s wage growth and inflation figures, the general sense is that the FED may need to lift rates on at least four occasions this year, the first expected to be in next month’s policy meeting.

The Dow reversed a more than 300 point gain to end the day down 166 points following the release of the minutes, with the 10-year Treasury yield jumping to a fresh 4-week high 2.95% on Wednesday to hit mortgage rates, before yields eased back to 2.87% by Friday’s close.

It’s all about interest rates and inflation and mortgage rates are at the mercy of both.

Freddie Mac rates for new mortgages last week were quoted to be:

  • 30-year fixed rate loan rose to from 4.38% to 4.40% last week and up from 4.16% a year ago.
  • 15-year fixed rates rising from 3.84% to 3.85% and from 3.37% from a year ago.
  • 5-year fixed rates stand at 3.65%, up from the previous week’s 3.63% and 3.16% a year ago.

Refinancing rates are currently as follows:

  • 30-year fixed to refinance rates slipped from 4.32% to 4.32%,
  • 15-year fixed to refinance rates rose from 3.70% to 3.73%.
  • 10-year fixed to refinance rates were unchanged at 3.65%.

The moves in the refinancing rates may provide prospective home buyers with some hope, in that 30-year fixed to refinance rates slipped, but when considering the key drivers to 10-year treasury yields, which ultimately impact mortgage rates and borrowing costs in general, current levels with an upward bias are likely to persist through March.

For those who have delayed buying a new home, more delay could well mean more pain, with 30-year fixed rates now at the highest level since April of 2014.

The unknown, for now, is how aggressively the FED has upwardly revised its economic projections. The March 20-21st FOMC meeting, which will conclude with the release of the FOMC’s 1st quarter economic projections will be key to the direction of mortgage rates through the Spring.

Between now and the next FOMC, February wage growth and inflation figures will also need to be considered. With consumer confidence at such high levels, the tax reform bill and a further tightening in the labor market that has finally led to some more meaningful growth in wages, there’s certainly good cause for the FED to take a more optimistic outlook. Such a view may well see some of the more hawkish members of the FED pencil in a 5th hike this year. 10-year yields could move through to 3% levels and, as home buyers are discovering, that’s not going to be a favorable outcome.

While we tend to focus on mortgage rates, it’s worth considering the impact of rising interest rates on borrowing costs in general.

Consumers have enjoyed a record low-interest rate environment for some time and this has contributed to rising debt, whether by way of leverage in the financial markets, bank loans or credit card outstandings. As the U.S begins to enter into a possibly more aggressive period of monetary policy normalization, offsetting the effects of rising mortgage rates, by reducing debt elsewhere would be a prudent move.

Looking ahead to next week and key data out of the U.S that can further impact mortgage rates and sentiment towards FED monetary policy:

U.S Consumer Confidence, Core Durable Goods, 2nd Estimate, 4th quarter GDP, Core PCE Price Index Personal Spending and Wage Growth will be there for the markets to consider.

The Core PCE Price Index is the FED’s preferred measure for inflation, so any move towards 2% and the chances of a 5th rate hike this year rises and borrowing costs with it.

Wage growth figures will be released after Freddie Mac releases the coming week’s fixed rates, but there’s plenty of data ahead of Thursday’s close to influencing yields.

Outside of the data, FED Chair Jerome Powell will give his first testimony to the Senate since taking over from Yellen at the start of the month. This will also be of influence, with Powell likely to face some tough questions on policy, having just stepped into the most powerful central bank post in the world.

Onwards and upwards, but we may see mortgage rates begin to steady, with 30-year fixed having surged the last week of December’s 3.99%.

Unsurprisingly, mortgage applications nosedived in response to the persistent rise in rates, with the Mortgage Bankers Association reporting a 6.6% week-on-week fall in applications in the week of 12th February.

Mortgages Climb for a 6th week to a 4-year High and Still more to Come

Following a particularly volatile couple of weeks, the equity markets went into recovery mode last week, with the S&P500 seeing the best weekly gain in 5-years, to end the week 4.9% short of its record high.

In contrast to previous weeks, the equity markets have moved on from the sheer panic of rising Treasury yields that have come in response to signs of a pickup in inflation in recent weeks.

Following the market response to the wage growth figures at the start of the month, we saw January inflation figures come in better than expected on Tuesday, with import and export prices on the rise, according to figures released on Friday, suggesting that pressure is to build further.

10-year Treasury yields ended the week at 2.87%, which was down from above 2.9% levels hit during the past week that pushed mortgage rates higher from the previous week.

Refinancing rates are currently as follows:

  • 30-year fixed refinance rates rose from 4.23% to 4.33%,
  • 15-year fixed refinance rates rose from 3.56% to 3.67%.
  • 10-year fixed refinance rates rose by 12 basis points to 3.62%.

Freddie Mac rates for new mortgages last week were quoted to be:

  • 30-year fixed rate loan rose to from 4.32% to 4.38% last week and up from 4.15% a year ago.
  • 15-year fixed rates rising from 3.77% to 3.84% and from 3.35% from a year ago.
  • 5-year fixed rates stand at 3.63%, up from the previous week’s 3.57% a 3.18% a year ago.

Looking at the moves from a year ago, it may not look so bad but, when considering the fact that 30-year fixed mortgage rates averaged 3.78% in September of last year, that’s quite a leap and equivalent to an additional $100 per month payment on a $300,000, 30-year fixed loan.

For those looking to buy, the rise in rates over the last 6-weeks will be a painful one, but rates are still well below record levels and, while some may be looking to sit back in hope of a reversal in trend, the general trend is upward.

FED monetary policy is unlikely to go into reverse anytime soon and, with inflationary pressures beginning to build, a March rate hike could result in the financial markets beginning to price in a 4th rate hike for this year. Such a move would certainly push Treasury yields higher and see mortgage rates move much closer to the 5% mark, which would be a doomsday scenario for some.

It’s quite a shift from late December when Freddie Mac had projected that 30-year fixed mortgage rates would peak at 4.4% in 2018. We’re almost there and there seems to be little evidence that we’re anywhere near a peak, with inflationary pressures only beginning to appear within the economic indicators.

With mortgage rates now up for a 6th consecutive week, the week ahead will be another telling one with the FOMC’s monetary policy meeting minutes scheduled for release on Wednesday. Any hawkish commentary and talks of a need to take a more aggressive rate path will see rates climb higher yet. The good news, for now, is that the major FOMC announcements will be next month when it releases its economic projections, so there’s still some time.

Looking back, rates are also still low relative to historical levels, with the exception of the post-Global Financial Crisis era, where rates have ranged between 3-4% in recent years, after easing from 6.5% plus levels at the start of the crisis. While not wanting to spook prospective buyers, rates had hit more than 16% in the early 1980s and were just shy of 7% going into the U.S housing crisis that ultimately led to the Global Financial Crisis.

Interestingly, while the general view is that current rates will unlikely impact demand in the housing sector due to record low inventories, mortgage applications fell to the lowest level in 5-weeks, with applications falling by 4.1%.

Freddie Mac’s average mortgage rate may be 4.38%, but average rates on 30-year loans of $453,100 or less stand at 4.57%, up from the previous week’s 4.5%, according to the Mortgage Bankers Association (“MBA”). With applications on the slide, the MBA’s mortgage purchase index saw its largest weekly decline since December, down 6% last week. The MBA’s mortgage purchase index is considered to be a proxy for future house prices

With Spring just around the corner, weather conditions may have to be cast aside, in the interest of saving a few cents and locking in mortgage rates before we see inflation hit the FED’s 2% objective, which would leave the FOMC with little choice but to take action in the interest of avoiding a material overshoot.

Mortgage Rates Up for a 5th Consecutive Week

It was a tough week for the U.S last week, the Dow Jones saw two 1,000 point drops in the same week, which has never happened in the Dow’s history, not even during the Great Depression or the Global Financial Crisis.

While trillions of Dollars were wiped out in just a matter of days, mortgage rates continued to rise, with U.S mortgage rates rising for a 5th consecutive week.

A week of records, but not the type of records that save a few pennies, with mortgage rates climbing to December 2016 highs in the week.

The increase in mortgage rates was across the board. For refinance mortgages, the 30-year fixed climbed 6 basis points to 4.3%, while the 15-year and 10-year fixed rates saw larger increases in the week, the 15-year fixed rate climbing 10 basis points to 3.62%, with the 10-year fixed up 8 basis points to 3.56%.

An increase to the government debt ceiling and an expected jump in bond issuances hit yields, with a Wednesday auction seeing weak demand raising concerns over the success of future issuances.

With inflationary pressures building and the markets continuing to pencil in a 4th rate hike for the year, 10-year Treasury yields hit a 4-year high 2.88% on Monday, before closing the week at 2.85%.

As mortgage rates continue to rise, more and more prospective home buyers will be priced out of the market, while others will need to re-evaluate finances and target properties, with the pickup in wage growth and savings from the tax reform bill unlikely to be enough for some.

FOMC members attempted to downplay the market expectations that wage growth will quickly translate into an acceleration in the annual rate of inflation, but the markets were largely uninterested in the chatter.

While supply issues have provided strong support to the real estate sector and will likely to continue to do so near-term, homeowners looking to refinance before mortgage rates hit the roof, not to mention those looking to get on the ladder, will need to consider the reality that property prices are not going to keep rising and at some point the supply-demand balance will reverse.

A tumble in the equity markets will have certainly impacted buyer appetite and with rates on the rise, there’s another reason for the real estate sector to be a little edgy mid-way through the 1st quarter.

For new mortgages, Freddie Mac reported on Thursday that the average 30-year fixed-rate mortgage rate stood at 4.32% for the week ending 8th February, rising 10 basis points from the previous week’s 4.22%. It’s been a rapid rise, with rates having climbed 0.33% through the first 6-weeks of the year.

The good news for many will be the fact that mortgage rates are just 0.15% up from the same time last year, supporting application demand, with mortgage applications 8% higher than a year ago, while the number of applications held steady week-on-week, in spite of the jump in mortgage rates.

In the coming weeks, the key will likely be how quickly a pickup in wage growth translates into inflation and ultimately leaves the FED with little choice but to project a more accelerated rate path for this year. There is some time, with the next set of FOMC economic projections not due for release until 21st March, but by then the writing could be on the wall, with the yields likely to pre-empt what’s to come.

On the delinquency rates, 30-day delinquency rates for all mortgages had been on the decline through the final quarter of last year, while 60-day and 90-day delinquencies were on the rise, though still lower than in 2016. How delinquency rates move through the 1st quarter will also be of influence and with FHA mortgage delinquency rates higher year-on-year in the 4th quarter, there is already evidence of some homeowners being stretched. Rising interest rates and an anticipated fall in household disposable incomes will be factors that may put further pressure on the market and mortgage lending standards, in a rising mortgage rate environment.

Mortgage Rates Accelerate Last Week and More Pain is on the Way

Last week, 30-year fixed mortgages rates increased by 0.07% to 4.27%, while 15-year fixed mortgage rates increased by 0.09% to 3.71%. Mortgage applications surged 4.5% week-on-week, with refinancing up by 1%.

Homeowners and those looking to get on the ladder have already seen valuable pennies disappear and last week was no different.

There may be hopes of wage growth beginning to accelerate to offset the recent increase, but the reality remains that, while labor market conditions continue to tighten until there are strong indications of a pickup in the annual rate of inflation, wage growth will remain soft.

What does that mean for prospective buyers and those looking to refinance their mortgages?

It ultimately boils down to getting the best deal possible before rates become a runaway train.

Last week was a relatively tame one from a Dollar perspective and, even with 4th quarter GDP numbers falling short of the magic 3.0% and the Mnuchin – Trump show confusing the markets, mortgage rates responded the only way they know how and that’s up.

Of great significance this week is the FOMC monetary policy decision and FOMC statement, with the markets relatively unsure of how Yellen will end her reign and how Powell will take over, a March rate hike certainly on the cards for the incoming FED Chair.

December Core PCE Price Index figures were in line with forecasts, with yields on the bounce at the start of the week, suggesting that rates are likely to pick up again this week.

Last week, not only did mortgage rates hit levels not seen for almost a year, but mortgage applications also joined rising rates and that really is a sign of what’s homeowners and mortgage advisers believe to be on the horizon. Slow and steady is certainly better than fast and furious for homeowners and, while those looking to get on the ladder may be less sensitive to the weekly increases in mortgage rates, the shift in mortgage rates is starting to be one that can’t be ignored.

FED economic projections pointed to 3 rate hikes this year and, while few expect the FED to take the opportunity to shift its stance on policy to a more aggressive rate path, the fact that inflation continues to sit well below the 2% objective has failed to ease the pressure. How the FED assesses the impact of the tax reform bill on the economy and personal finances will also be relevant this week.

The Good news, for now, is that the latest weekly increase has a negligible Dollar impact, which supports the current relationship between applications and rates. How long the trend continues for remains to be seen however and, with yields continuing to rise, there’s little to hold mortgage rates back from moving towards a forecasted 4.6% mortgage rate for the year within the next few weeks, if not sooner.

Yields have been moving so quickly that there are reports of 30-year fixed mortgage rates being offered at 4.5% this week, rising from last week’s 4.28%.

With home prices on the rise, supply continues to be tight and mortgage rates accelerating, things are beginning to look precarious. To make matters worse, according to government figures released on Monday, the U.S savings rate fell to 2.4%, which was the lowest since 2005.

Mortgage Rates Hold Steady after FED Rate Hike, Auto Loan Industry under Pressure

The FED lifted rates for the 5th time since the global financial crisis and for the 3rd time this year and, while we saw the latest rate hike have almost no impact on mortgage rates, the cumulative impact on mortgage rates and other variable loan payments, including credit cards and home equity loans, will be felt by lower-income households in particular.

Following the FED’s rate hike last Thursday, a slide in U.S Treasury yields provided some level of comfort for those with variable mortgage rates. According to Freddie Mac’s latest figures, the 30-year mortgage rate slipped from the previous week’s 3.94% to 3.93% last week, while also well sitting below last year’s 4.16%.

In contrast, the mortgage rate for 15-year mortgages held steady at 3.36%, just shy of last year’s 3.37%, while 5-year rates increased from 3.35% to 3.36%, sitting well above last year’s 3.19%.

As far as homeowners and prospective buyers are concerned, the latest rate hike and market sentiment towards the FED’s inflation outlook for next year has left the markets less than convinced that the FED will be able to hike rates 3-times next year, let alone need to take a more hawkish position on monetary policy. For now, it’s priced in and the impact on longer-term mortgage rates has clearly been limited at best.

Adding support to the falling yields ahead of Thursday’s mortgage rates release was concern over the lack of progress on the tax reform bill, which has been particularly influential on U.S Treasury yields in recent weeks.

U.S Treasury yields have been on the rise at the start of this week, with the U.S equity markets having hit fresh highs on Friday on expectations that the tax reform bill will get voted through this week.

So, while there’s been plenty of talk of how mortgage rates have been unaffected by the FED’s continued move towards monetary policy normalization, Freddie Mac’s 30-year fixed mortgage rate history tells a different story.

Looking at annual averages since 2014, before the FED’s first post-GFC rate hike, the annual average mortgage rate stood at 4.17%, before falling to 3.85% in 2015 and 3.65% in 2016. For the current year, the annual mortgage rate is likely to be around the 3.95% level which reflects the normalization process by the FED.

The car industry is under intense pressure

Continuingly tepid wage growth and rising borrowing costs are certainly a bad combination for the U.S economy and for the lower household income families that are likely to also be exposed to sub-prime car loans and more costly credit card rates on a monthly basis.

For now, the good news is that the car industry is under intense pressure, with car loans being offered at particularly attractive rates. This environment is not going to go on forever however and some care is needed in taking on additional obligations, as in the end, the rate hikes will begin to bite, particularly on existing loans and credit card facilities with variable rates. It may be too early to look for fixed rates in place of a variable, but with the monetary policy easing cycle has come to an end, the chances of further declines will be hinged on how the FED progresses through next year. Even the conservative 3 rate hikes will be felt, in spite of tax reforms that are likely to be rolled out this week.

Mortgage Rates on the Rise

Mortgage rates were on the rise last week, with the gains coming in response to progress on the tax reform bill that drove U.S Treasury yields northwards.

Rates have been relatively choppy of late, with sentiment towards FED monetary policy, tax reforms and the ongoing investigations into the U.S administration factors influencing over the near-term.

Home buyers and those looking to refinance may be wondering when the best time will be to get the best rate and, whether the combination of tax reforms and a rate hike will lead to an upward revision to next year’s mortgage rate forecasts.

According to Freddie Mac’s latest rates released on Thursday, 30-year fixed mortgage rates rose from 3.90 to 3.94, whilst continuing to sit below the 4.13% from the previous year. 15-year fixed mortgage rates saw a larger increase, rising from 3.30% to 3.36%, which was the same as the previous year.

Things could have been worse for rates had the government funding issue been resolved ahead of Thursday’s numbers. Yield gains were held back over concerns that the U.S government may shut down by Friday’s close, with Trump’s recognition of Jerusalem as the capital of Israel also raising the alarm bells. The Middle East has seen tension rise through the year, with the Saudis looking to take a stronger position in the region. The latest Trump move hasn’t made things any easier, adding to the laundry list of key drivers for U.S Treasuries this month.

Sentiment towards the outlook for mortgage rates is mixed as of now, while things could become a little clearer on Wednesday with the release of the FOMC economic projections. Economic indicators have been relatively upbeat and the impact of tax reforms on corporate earnings is also anticipated to be positive. For now, the markets have priced in 3 rate hikes for next year, with the inflation environment and Jerome Powell’s appointment as the FED Chair keeping rate hike expectations on the lower side.

For this week, the 2-weeks of additional funding for the government will have eased appetite for U.S treasuries, which would provide further upside for mortgage rates, with Friday’s wage growth and Nonfarm payroll numbers also likely to contribute to higher rates.

Recent rises in both new mortgage and refinance applications suggest that the general consensus is that rates are likely to remain on an upward trend, which would be in contrast recent projections for 2018, though how much of this comes from stronger labor market conditions rather than rate expectations remains to be seen.

Mortgage Rates – Don’t be too Hasty

While there are significant concerns over the auto loan sector and the subprime segment, in particular, the housing sector paints a very different picture.

We have seen the U.S housing market continue to recover from the dark depths of the global financial crisis and with it, the outlook for mortgage rates continues to look enticing for homeowners looking to refinance and for those looking to get onto the property ladder.

It was perhaps a little less rosy last week, with Freddie Mac announcing that 30-year fixed rate mortgages crept up from 3.9% to 3.95%. That’s a 4-month high and a touch above the 3.94% for the same time last year.

With long-term mortgage rates correlated with 10-year Treasury yields, the progress of the U.S tax reform bill through the house supports yields. News of the U.S President’s campaign election being subpoenaed reversed any uptick in yields, however, with the Dollar and yields taking a tumble late in the week. Freddie Mac’s rates came ahead of the news and we could see longer-term rates ease back in the week ahead.

The good news is that a December rate hike is largely priced in and will unlikely have a material impact on mortgage rates over the near-term. In fact, estimates for 30-year mortgage rates for next year are particularly favorable. Rates are forecasted to peak in February of next year, before easing to 3.73% by April of next year.

For those looking to sit it out and wait for better rates, there is a risk that current forecasts fall short of considering a possible shift in the FED’s rate path projection for next year. Last Monday, FOMC voting member Harker suggested that he would be supportive of 3 rate hikes next year. The other factor to consider is the fact that the FED has a little buffer from an interest rate perspective, to manage an economic slowdown. Persistently low inflation has been the root cause. If tax reforms do manage to get through before the end of the year and the administration begins to focus on infrastructure spending, things could change quite rapidly. While talk of infrastructure spending may do its rounds, the debt issue faced by the U.S government and the impact of tax reforms on U.S debt levels suggest that infrastructure spending is unlikely to materialize anytime soon.

Mortgage rates are linked to financial markets and politics in some cases. Projections for three rate hikes in the next year can cool down the housing market. As it seems now, 2018 can be hectic for real estate as buyers always wake up before things get expensive.

That will be good news for those looking to take advantage of the favorable mortgage rate outlook through the first half of next year.

Mortgage and Auto Loan Rates – What a Difference

It was another good week for the real estate market last week. 30-year mortgage rates eased back from 3.94% to 3.9% over the week. Concerns over the effects of rising U.S interest rates on long-term mortgage rates have been a factor in the number of refinancing mortgages over the last 24-months.

Rates are above last year’s 3.57%, but considering the fact that the FED as lifted rates on three occasions in the last twelve months, there will be some comfort in the numbers. Pre-global financial crisis rates were in the 6% range. Judging by the FED’s rate path and FOMC Member Powell’s selection as the next FED Chair, 6% is some way off and certainly better than the 4.32% mortgage rate hit at the end of last year.

While the FED’s rate path has limited impact for now, of greater interest will be whether tax reforms will have any influence on longer-term rates. Treasury yields were particularly volatile over the last few weeks. High expectations on tax reforms had seen yields on an upward trend, only for concerns that corporate tax cuts may need to be held off until 2019 to peg back yields. Interestingly, tax savings elsewhere may well have less of an impact on yields, which could be a positive for U.S households. Mortgage rates, which have a correlation to U.S Treasury yields, could hover at around current levels and with household tax savings, it could be seen as a boost to household disposable incomes.

It’s unlikely that the softer rates will influence U.S house prices, which remain influenced by supply constraints and, while there are rising concerns of a student loan crisis, until the housing sector sees a significant rise in inventories, credit conditions will likely remain favourable for the buyer and for those looking to take advantage of current rates.

While mortgage rates have been favorable, things are somewhat different in the car industry. A recent article by Bloomberg reported quite a spread on car loans and some of the rates being offered can be categorized as subprime in nature.

Lending rates in the South have hit in excess of 17%, with South Carolina seeing rates move beyond 18% in the sub-prime area. Barring a handful of States, it’s quite dire reading on the rate front. The numbers suggest that lenders are dishing the money out with little regard. A higher number of non-performing loans could begin to see a tightening in underwriting standards. Recently shamed Equifax was reported to have called the car loan credit segment to have the worst quality borrowers. They went on to classify the loan quality as deep subprime.

After the rating agencies fall from grace as a result of the global financial crisis, rating analysts have been quick to highlight the quality of subprime car loans that have been bundled for investors. It does mean that for those looking for auto loans, sooner rather than later would be wise. We would expect underwriting standards to tighten. It may contradict Trump’s intentions to deregulate, but he would certainly want to avoid an auto sector crisis.

The Securities & Exchange Commission will be on the hook this time, with banks and rating analysts raising the red flags. The advice for those looking for auto loans would be to shop around and try to find the best possible rates on offer. There is a deep need within the industry to maintain auto sales volumes, but for the buyer, it shouldn’t come at a crippling cost.