Mortgage rates increased for the first time in 6 week weeks after having hit an all-time record low 2.98% in the week ending 16th July.
KEY POINTS
- Mortgage applications to purchase a home were 2% lower last week than the previous week but a strong 21% higher annually.
- The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances remained unchanged at 3.20%.
- However, the average rate for FHA-backed 30-year fixed rate mortgages jumped to 3.27% from 3.13%.
At a high level, housing demand is unusually strong. Purchases of previously owned homes posted their largest monthly advance on record in June, according to data last week from the National Association of Realtors. Meanwhile, purchases of new single-family houses raced to an almost 13-year high in the same month, exceeding all economists’ forecasts. Those data points were backed up by quarterly results from PulteGroup Inc. that showed home orders for June jumped 50% from a year earlier, led by a spike in first-time buyer interest. Given that the company tends to focus on more expensive homes than its peers, it supports the theme of white-collar workers who previously rented in large cities opting for more space to work remotely in the suburbs.
According to Freddie Mac:
- While housing demand continued to rebound, the month-long swoon in economic activity caused 10-year Treasury yields to fall.
- In the short-term, this means that demand will continue off the back of low mortgage rates.
- The most recent consumer spending data, however, has pointed to slow growth since mid-June.
- Of concern is that the pause in economic activity will cause unemployment to remain elevated. Such an eventuality would lead to longer-term labor market stress.
Applications to refinance a home loan were basically flat, falling 0.4% for the week but were 121% higher than a year ago. Refinance demand has been riding high because mortgage rates keep falling. Even small rate moves open the field to more borrowers who can benefit and save much-needed cash on their monthly payments.
FHA loans are popular with first-time homebuyers because they offer lower down payments. A pullback on FHA purchase demand could be a red flag in the housing recovery. These buyers made up a strong 35% of closed sales in June, according to the National Association of Realtors, but that was before the pandemic took another turn for the worse. Higher interest rates, as well as rising home prices, may be weighing on this cohort.
Barring an unexpected change in regulations or a way past the coronavirus pandemic, this looks as if it could be about as good as it gets for mortgage rates.