US mortgage rates rise on trade talks optimism

Washington

AFTER sinking to their lowest levels in nearly three years, US mortgage rates popped back up this week. According to the latest data released on Thursday by Freddie Mac, the 30-year fixed-rate average climbed to 3.56 per cent with an average 0.5 point. (Points are fees paid to a lender equal to one per cent of the loan amount and are in addition to the interest rate.) It was 3.49 per cent a week ago and 4.6 per cent a year ago. The 15-year fixed-rate average jumped to 3.09 per cent with an average 0.5 point. It was 3 per cent a week ago and 4.06 per cent a year ago. The five-year adjustable rate average rose to 3.36 per cent with an average 0.3 point. It was 3.3 per cent a week ago and 3.93 per cent a year ago.

Apparent headway in the US-China trade discussions helped propel mortgage rates higher, said Matthew Speakman, a Zillow economist. "Optimism that recent signs of progress will result in the abandonment of proposed tariffs, due to be imposed in October, pushed bond yields higher, and mortgage rates followed." The yield on the 10-year Treasury, which had fallen to 1.47 per cent earlier this month, bounced back this week, rising to 1.75 per cent on Wednesday.

"A heavy dose of generally strong economic data also contributed to a rebound in mortgage rates, particularly better-than-expected wage growth figures and an encouraging read on the services sector," Mr Speakman said. "The strength of the consumer continues to propel the economy, so all eyes will be on the August retail sales report on Friday. A positive reading would inject the economy with even more optimism, and push rates even higher, ahead of next week's (US Federal Reserve) meeting."

George Ratiu, a senior economist at Realtor.com, said the financial markets expect the central bank to lower its benchmark rate. The Fed doesn't set mortgage rates, but its decisions influence them. "Mortgage rates rose this week riding a wave of investor sell-off in the Treasury bond market, fuelled by concerns over the German - and by extension - the broader European economy," he said. "Moreover, equity markets have already priced in an expected rate cut from the Federal Reserve at its next meeting."

Bankrate.com, which puts out a weekly mortgage rate trend index, found that nearly two-thirds of the experts it surveyed say rates will move higher in the coming week.

"The past few days have presented positive news which tends to ease uncertainty," said Elizabeth Rose, mortgage planning specialist with AmCap Home Loans in Texas. "As uncertainty eases, mortgage bonds move lower in price, which translates to higher rates for home buyers. Currently, there remains more downside risk in bonds than there is upside potential."

Meanwhile, mortgage applications rebounded slightly on the strength of purchasers. According to the latest data from the Mortgage Bankers Association (MBA) , the market composite index - a measure of total loan application volume - increased 2 per cent from a week earlier. The refinance index was flat at 0.4 per cent, while the purchase index rose 5 per cent. The refinance share of mortgage activity accounted for 60 per cent of all applications.

"The lowest mortgage rates in nearly three years pulled applications 2 per cent higher," said MBA president and chief executive officer Bob Broeksmit. "With refinances mostly unchanged, home buyers took advantage of the decline in rates last week. Purchase activity jumped 5 per cent and was a solid 9 per cent higher than a year ago," he said.

The MBA also released its mortgage credit availability index (MCAI) this week that showed credit availability decreased in August. The MCAI fell 3.9 per cent to 181.7 last month. A decline in the MCAI indicates that lending standards are tightening, while an increase signals they are loosening. "Credit supply declined across the board in August, even as mortgage rates fell and application activity picked up, particularly for refinances," Joel Kan, an MBA economist, said in a statement. "Last month's decrease was the largest since December 2018, and also the first tightening we have seen for conventional loans all year. We anticipate some weakening of the job market in the year ahead as economic growth cools. It's possible some lenders may be tightening credit in expectation of a slowdown." WP