US Mortgage Rates Tumble to Below 5% in Response to Recession Fears

In the week ending August 4, mortgage rates tumbled as concerns over inflation and the US economic outlook weighed.

30-year fixed rates slumped by 31 basis points. Following a 24-basis point slide from the previous week, mortgage rates fell to sub-5% for the first time since April 6.

Year-on-year, 30-year fixed rates were up by 222 basis points while down 82 basis points from June 22, 2022, peak of 5.81%.

Economic Data from the Week

Economic data from the week ending July 29 sounded the alarm bells. The US economy contracted by 0.9% following a 1.6% contraction in Q1, supporting market fears of a recession. Jobless claims were also on an upward trend, drawing interest ahead of the July nonfarm payroll numbers.

This week, stats in focus ahead of the mortgage rate release included July private sector PMI numbers.

The ISM Manufacturing PMI slipped from 53.0 to 52.8, while the ISM Non-Manufacturing PMI unexpectedly rose from 55.3 to 56.7.

However, labor market numbers disappointed, with JOLTs job openings falling from 11.303 million to 10.698 million. The numbers were significant as they preceded nonfarm payroll figures released after the mortgage rate publications.

Freddie Mac Rates

The weekly average rates for new mortgages, as of August 04, 2022, were quoted by Freddie Mac to be:

• 30-year fixed rates slumped by 31 basis points to 4.99%. This time last year, rates stood at 2.77%. The average fee held steady at 0.8 points.

• 15-year fixed rates tumbled by 32 basis points to 4.26%. Rates were up by 216 basis points from 2.10% a year ago. The average fee declined from 0.8 points to 0.6 points.

• 5-year fixed rates slipped by four basis points to 4.25%. Rates were up by 185 basis points from 2.40% a year ago. The average fee remained unchanged at 0.3 points.

According to Freddie Mac,

• Mortgage volatility persisted due to inflationary pressures and clear evidence of weaker economic growth.
• Uncertainty over inflation and other key drivers are likely to contribute to mortgage rate volatility as the Fed attempts to tackle the inflation issue amidst the weaker economic environment.

Mortgage Bankers’ Association Rates

For the week ending July 29, 2022, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances decreased from 5.74% to 5.43%. Points rose from 0.61 to 0.65 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA fell from 5.54% to 5.39%. Points increased from 0.85 to 1.03 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances declined from 5.32% to 5.06%. Points fell from 0.43 to 0.36 (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, increased by 1.2%. The Index declined by 1.8% in the week prior.

The Refinance Index rose by 2% and was 82% lower than the same week a year ago. In the previous week, the Index declined by 4%.

The refinance share of mortgage activity increased from 30.7% to 30.8%. In the week prior, the share decreased from 31.4% to 30.7%.

According to the MBA,

• Mortgage rates declined in response to the Fed policy decision and the talk of more tightening.
• Treasury yields fell due to expectations of a weaker economic environment.
• The 30-year fixed saw the biggest weekly fall since 2020, with lower rates supporting refinance activity and purchase applications.
• Lower mortgage rates and a rise in inventory could support a rebound in purchase activity.

For the week ahead

Inflation will be the area of focus, with July consumer price inflation numbers due on Wednesday.

Following the impressive nonfarm payroll numbers from Friday, another spike in inflation could see increased bets of a full percentage point rate hike in September. Such an eventuality could see mortgage rates bounce back.