U.S Mortgage Rates Fall as Geopolitical Risk Hits Yields

Mortgage rates hit reverse in the week ending 26^th September. 30-year fixed rates fell by 9 basis points to 3.64%, partially reversing a 17 basis point surge in the week prior.

The pullback left 30-year rates close to levels last seen in early November of 2016, according to figures released by Freddie Mac.

Compared to this time last year, 30-year fixed rates were down by 108 basis points.

More significantly, 30-year fixed rates are down by 130 basis points since last November’s most recent peak of 4.94%.

Economic Data from the Week

Through the first half of the week, economic data included prelim September private sector PMI numbers, consumer confidence figures, and housing data.

A slight pickup in U.S. private sector activity in September failed to spur the markets, with PMI figures out the Eurozone testing risk sentiment at the start of the week.

U.S consumer confidence figures on Tuesday also weighed, with the CB Consumer Confidence Index falling from 134.3 to 125.1.

On Thursday, 3^rd estimate GDP numbers for the 2^nd quarter were in line with 2^nd estimates, which had a muted impact on yields. The markets brushed aside trade data and the weekly jobless claims figures on Thursday.

Direction ultimately came from geopolitical risk, which was on the rise once more,

A lack of progress on Brexit, impeachment talks in the U.S and mixed sentiment towards the U.S – China trade war pinned back U.S Treasury yields.

Freddie Mac Rates

The weekly average rates for new mortgages as of 26^th September were quoted by Freddie Mac to be:

• 30-year fixed rates decreased by 9 basis points to 3.64% in the week. Rates were down from 4.72% from a year ago. The average fee increased from 0.5 points to 0.6 points.

• 15-year fixed rates fell by 5 basis points to 3.16% in the week. Rates were down from 4.16% from a year ago. The average fee held steady at 0.5 points.

• 5-year fixed rates decreased by 11 basis point to 3.38% in the week. Rates were down by 59 basis points from last year’s 3.97%. The average fee remained unchanged at 0.4 points.

According to Freddie Mac, the housing market regained momentum with home sales and construction at or near decade highs. Solid sales and price gains are expected to continue into the fall. Both strong labor market conditions and mortgage rate at sub-4% levels will provide support in the months ahead.

In August, pending home sales rose by 1.6%, reversing most of a 2.5% fall in July, with new home sales surging by 7.1%.

Building permits and housing starts had also impressed in August. Building permits jumped by 7.7%, while housing starts surged by 12.3%.

Mortgage Bankers’ Association Rates

For the week ending 20^th September, rates were quoted to be:

• Average interest rates for 30-year fixed, backed by the FHA, increased from 3.89% to 3.90%. Points decreased from 0.30 to 0.23 (incl. origination fee) for 80% LTV loans.
• Average interest rates for 30-year fixed with conforming loan balances rose from 4.01% to 4.02%. Points increased from 0.37 to 0.38 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances decreased from 4.01% to 4.00%. Points slipped from 0.29 to 0.26 (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, tumbled by 10.1% in the week ending 20^th September. In the week ending 13^th September, the Market Composite Index had fallen by 0.1%.

The Refinance Index slid by 15% in the week ending 20^th September, leaving the index up by 104% from the previous year. The Index had decreased by 4% in the week ending 13^th September.

The share of refinance mortgage activity decreased from 57.9% to 54.9%, following on from a fall from 60.0% to 57.9% in the week prior.

According to the MBA, a fall in U.S Treasury yields drove mortgage rates downwards, with pressure coming from the FOMC’s meeting. Heightened uncertainty over the economic outlook pegged yields back. In spite of falling yields, mortgage rates found support, leading to a 20 basis point rise over the last 2-weeks.

The MBA also noted that applications decreased as a result of the upward trend in the last 2-weeks. In spite of the downward trend, however, applications were still up by 9% from last year.

For the week ahead

Key stats include September private sector PMI numbers due out on Tuesday and ADP Nonfarm Employment Change figures due out on Wednesday.

From elsewhere, private sector PMI numbers due out of China on Monday will also influence U.S Treasuries.

On the geopolitical front, trade war chatter, Brexit and impeachment talk will also provide U.S Treasuries with direction.

Barring a disappointing Chicago PMI on Monday, we would expect the numbers to be brushed aside at the start of the week.