U.S Mortgage Rates Hit another Record Low as COVID-19 Stresses the Markets

Mortgage rates hit yet another all-time record low in the week ending 9^th July.

30-Year fixed rates fell by 4 basis points to an all-time low 3.03%. In the previous week, 30-year fixed rates had fallen by 6 basis points to 3.07%.

Compared to this time last year, 30-year fixed rates were down by 72 basis points.

30-year fixed rates were also down by 191 basis points since November 2018’s most recent peak of 4.94%.

Economic Data from the Week

Economic data was on the lighter side through the 1^st half of the week.

Key stats included June’s ISM Non-manufacturing PMI, May’s JOLT’s job openings, and the weekly jobless claims.

The stats were skewed to the positive, with the Non-Manufacturing PMI jumping from 45.4 to 57.1. In May, JOLT’s job openings stood at 5.397m, rising from an April 4.996m.

Weekly jobless claims also provided support to riskier assets, with initial jobless claims rising by 1.314m in the week ending 3^rd July. Whilst still well above the 1m mark, this was down from a previous week 1.413m.

While the stats were positive, the alarm bells were ringing as U.S states continued to report surges in new COVID-19 cases. In the week, it was the market jitters over the latest COVID-19 breakout that overshadowed the better than expected stats.

U.S Treasury yields hit reverse as a result, leading to a further decline in U.S mortgage rates.

Freddie Mac Rates

The weekly average rates for new mortgages as of 9^th July were quoted by Freddie Mac to be:

• 30-year fixed rates fell by 4 basis points to 3.03% in the week. Rates were down from 3.75% from a year ago. The average fee also remained unchanged at 0.8 points.

• 15-year fixed decreased by 5 basis points to 2.51% in the week. Rates were down from 3.22% compared with a year ago. The average fee remained unchanged at 0.8 points.

• 5-year fixed rates rose by 2 basis points to 3.02% in the week. Rates were down by 44 points from last year’s 3.46%. The average fee remained unchanged at 0.3 points.

According to Freddie Mac:

• The summer is heating up as record-low mortgage rates continue to spur homebuyer demand.
• It remains to be seen, however, whether demand will continue if COVID-19 cases rise to the point that it hinders economic growth.

Mortgage Bankers’ Association Rates

For the week ending 3^rd July, rates were quoted to be:

• Average interest rates for 30-year fixed, backed by the FHA, decreased from 3.43% to 3.31%. Points declined from 0.36 to 0.24 (incl. origination fee) for 80% LTV loans.
• Average interest rates for 30-year fixed with conforming loan balances declined from 3.29% to 3.26%. Points fell from 0.36 to 0.35 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances decreased from 3.59% to 3.52. Points increased from 0.31 to 0.36 (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 2.2% in the week ending 3^rd July. In the week prior, the index had declined by 1.8%.

The Refinance Index increased by 0.4% from the previous week and was up by 111% from the same week a year ago. The Index had fallen by 2% in the week prior.

The refinance share of mortgage activity slipped from 61.2% to 60.1% in the week ending 3^rd July. In the week prior, the share had fallen from 61.3% to 61.2% of total applications.

According to the MBA:

• Mortgage rates declined to another record low as renewed fears of a coronavirus resurgence offset the effects of mostly positive economic data.
• The 30-year fixed-rate was down by 53 basis points since late March.
• Borrowers acted in response to these lower rates, with purchase applications increasing by 5% to the highest level in close to a month. Purchase applications were up 33% from a year ago as a result.
• The average purchase loan size increased to $365,700, as borrowers grappled with limited supply and higher prices.
• Following a marginal increase in refinance applications, overall refinance activity was up 111% from last year.

For the week ahead

It’s hectic 1^st half of the week for the Greenback.

Key stats from the U.S include June inflation figures and industrial production figures and NY State’s July Manufacturing Index.

On Thursday, June retail sales, the Philly FED Manufacturing Index, and the weekly jobless claims are also in focus.

While we can expect the stats to influence risk sentiment and U.S Treasuries, COVID-19 and geopolitics will likely remain the key driver.

From elsewhere, China’s 2^nd quarter GDP numbers will also influence market risk sentiment in the week. The markets are expecting a strong rebound from the dire 1^st quarter…