U.S Mortgage Rates Fall Ahead of the FOMC Meet and Projections

Mortgage rates were relatively flat once more, with 30-year fixed rates falling by just 2 basis points. After a 1 basis point rise in the week prior, rates fell the 6^th time in 11-weeks.

In the week ending 16^th September, 30-year fixed rates fell by 2 basis points to 2.86%.

30-year mortgage rates have risen just once beyond the 3% mark Since 21^st April.

Compared to this time last year, 30-year fixed rates were down by just 1 basis point.

30-year fixed rates were still down by 208 basis points since November 2018’s last peak of 4.94%.

Economic Data from the Week

It was a relatively busy first half of the week, with inflation figures for August in focus on Tuesday.

Softer inflation figures pegged back mortgage rates in the week.

In August, the U.S core annual rate of inflation slipped from 4.3% to 4.0%. While softer, the continued spike in inflation left a FED tapering on the table for this year.

On Wednesday, industrial production and NY Empire State Manufacturing data failed to drive yields in spite of upbeat numbers.

The NY Empire State Manufacturing Index climbed from 18.3 to 34.3 in September. Industrial production rose by 0.4% in August, following a 0.8% increase in July.

While the stats from the U.S were upbeat, economic data from China raised yet more red flags over the Chinese economic recovery.

In August, industrial production increased by 5.3%, year-on-year, which was down from 6.4% in July. Fixed asset investments also disappointed, rising by 8.9% versus 10.3% in July. Both fell short of forecasts.

Freddie Mac Rates

The weekly average rates for new mortgages as of 16^th September were quoted by Freddie Mac to be:

• 30-year fixed rates decreased by 2 basis points to 2.86% in the week. This time last year, rates had stood at 2.87%. The average fee remained unchanged at 0.7 points.

• 15-year fixed fell by 7 basis points 2.12% in the week. Rates were down by 23 basis points from 2.35% a year ago. The average fee remained unchanged at 0.6 points.

• 5-year fixed rates increased by 9 basis point to 2.51%. Rates were down by 45 points from 2.96% a year ago. The average fee fell from 0.3 points to 0.1 point.

According to Freddie Mac,

• Mortgage rates continued to remain flat, reflecting the markets’ view that prospects for the economy have dimmed as a result of the latest spike in new COVID-19 cases.
• Fundamental changes to the economy are occurring, however, which will likely lead to significant investment and new post-pandemic economic models that will spur economic growth.
• Such changes include increased migration, a continuation of remote work, increased use of automation, and focus on a more energy efficient and resilience economy.

Mortgage Bankers’ Association Rates

For the week ending 10^th September, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances remained unchanged at 3.03%. Points decreased from 0.33 to 0.32 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA fell from 3.07% to 3.04%. Points fell from 0.30 to 0.27 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances decreased from 3.14% to 3.13%. Points declined from 0.30 to 0.21 (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, increased by 0.3% in the week ending 10^th September. In the previous week, the index had declined by 1.9%

The Refinance Index declined by 3% and was 3% lower than the same week a year ago. The index had also fallen by 3% in the week prior.

In the week ending 10^th September, the refinance share of mortgage activity fell from 66.8% to 64.9%. The share had remained unchanged at 66.8% in the week prior.

According to the MBA,

• Purchase applications, after adjusting for the impact of Labor Day, increased over 7% to their highest level since Apr-21.
• Compared with Sept-2020, which was in the middle of a significant upswing in home purchases, applications were down 11%.
• The average loan size for a purchase application rose to $396,800, with a competitive purchase market pushing sales prices upwards.
• By contrast, refinance applications fell to their slowest pace since early July.

For the week ahead

It’s a quieter week ahead on the economic data front. Economic data is limited to housing sector data that should have a muted impact on yields.

The market focus will be on the FOMC monetary policy decision and projections due late on Wednesday.

A hawkish FED would push yields northwards that should support a pickup in mortgage rates in the coming weeks.