US Mortgage Rates Ease Back but Avoid sub-5% ahead of a Big Week

In the week ending August 18, mortgage rates slipped back after a choppy two weeks that saw 30-year fixed rates slide to sub-5% before jumping to 5.22%.

30-year fixed rates fell by 9-basis points, partially reversing a 23-basis point jump, to end the week at 5.13%. Prior to the 23-basis point jump, mortgage rates fell to sub-5% for the first time since April 6.

Year-on-year, 30-year fixed rates were up by 227 basis points while down 68 basis points since a June 22, 2022, peak of 5.81%.

Economic Data from the Week

Weak economic data from China set the tone on Monday. Industrial production increased by 3.8% year-over-year, down from 3.9% in June. Retail sales increased by 2.7% year-over-year, down from 3.1% in June. Economists forecast industrial production of 4.6% and retail sales of 5.0%.

The numbers disappointed, forcing the PBoC to deliver support that briefly limited the damage.

US economic indicators delivered mixed results. NY Empire State Manufacturing numbers also weighed on riskier assets ahead of positive stats on Tuesday and Wednesday.

US industrial production increased by 0.6%, with core retail sales up 0.4% in July to slow the flight to safety.

Freddie Mac Rates

The weekly average rates for new mortgages, as of August 18, 2022, were quoted by Freddie Mac to be:

• 30-year fixed rates fell by nine basis points to 5.13%. This time last year, rates stood at 2.86%. The average fee rose from 0.7 to 0.8 points.

• 15-year fixed rates slipped by four basis points to 4.55%. Rates were up by 239 basis points from 2.16% a year ago. The average fee held steady at 0.7 points.

• 5-year fixed rates declined by four basis points to 4.39%. Rates were up by 196 basis points from 2.43% a year ago. The average fee rose from 0.0 points to 0.3 points.

According to Freddie Mac,

• Mortgage rate surges have eased, with inflation seemingly beyond its peak.
• The housing market continues to absorb the effects of price and rate increases that have weighed on affordability.
• Looking ahead, demand will likely remain a drag, with home price growth on a downward trend due to a modest increase in supply.

Mortgage Bankers’ Association Rates

For the week ending August 12, 2022, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances decreased from 5.47% to 5.45%. Points fell from 0.80 to 0.57 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA rose from 5.35% to 5.38%. Points decreased from 1.02 to 1.01 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances increased from 5.09% to 5.14%. Points fell from 0.59 to 0.33 (incl. origination fee) for 80% LTV loans.

Weekly figures released by the Mortgage Bankers Association showed that the Market Composite Index, a measure of mortgage loan application volume, decreased by 2.3%. The Index rose by 0.2% in the week prior.

The Refinance Index declined by 5% and was 82% lower than the same week one year ago. In the previous week, the Index rose by 4%.

The refinance share of mortgage activity decreased from 32.0% to 31.2%. In the week prior, the share increased from 30.8% to 32.0%.

According to the MBA,

• Application activity weakened, with overall applications falling to their lowest level since 2000.
• Rising mortgage rates, a glum economic outlook, and affordability continued to weigh on mortgage applications.
• The MBA sees slower home price growth and a downward trend in mortgage rates a boon for purchase activity.
• Things were no better for refinance mortgages, with refinance activity falling to its lowest level since November 2000.

For the week ahead

It is a busier week ahead, with prelim August private sector PMIs and durable and core durable goods orders in focus. New and pending home sales will also draw interest in the first half of the week.

Weak service sector PMI and core durable goods orders could reignite fears of a US economic recession. We can also expect some market caution ahead of the Jackson Hole Symposium.

From elsewhere, the PBoC is due to set loan prime rates on Monday. A supportive move would be positive for riskier assets.