Sunday, March 6, 2016

Mortgage Rates Boost on the Back of Improved Economic Environment

Mortgage Rates Boost on the Back of Improved Economic Environment

Mortgage applications, refinancing and purchase declined over the week as mortgage rates increased

Mortgage Rates Boost on the Back of Improved Economic Environment
By Abdul Wasay on Mar 6, 2016 at 5:21 am EST

  • For the week that ended on March 3, Freddie Mac reported the benchmark 30-year fixed-rate mortgage rate increased to 3.64%. For the week that ended on February 25, the mortgage rate has been at 3.62%. This shows the upward trend of 0.55% over the week. As per the Washington Post, improved economic data drove the benchmark mortgage rates up. According to the data released on Thursday by the Federal Home Loan Mortgage Corp. (OTCMKTS:FMCC), 15-year fixed-rate mortgage rate was at 2.94%, and five-year adjustable rate increased to 2.84%. The week that ended on February 25 had 15-year rate at 2.93% and five-year adjustable rate at 2.79%. This indicates improvement of 0.34% in 15-year fixed rate mortgage rate while five-year adjustable rate increased 1.8% over the week.
    Freddie Mac chief economist, Sean Becketti stated: “The market turbulence that kicked off the year subsided at the end of February, providing at least a temporary break in the flight to quality.” He added that the treasury yields have approached the highest point in a month, which drove the growth in 30-year fixed-rate mortgage rate to 3.64%.
    However, recently Federal Reserve officials have hinted unchanged interest rates at 0.5%. Federal Reserve’s Vice Chairman Stanley Fischer hinted that there is no rush to hike rates in short-term. He emphasized that if more-than-full employment sustains, then only inflation rate will reach the target of 2%. Federal Reserve Governor Jerome Powell stressed that the central bank’s decision for rate hike is data-driven. Federal Fund future prices projection outlines that there is 94.2% probability of unchanged rates and 5.8% probability of quarter-point rate hike to 0.75%.
    Consumer spending improved in January, as the core PCE index improved 1.7% year-over-year (YoY). According to the US Department of Commerce, seasonally adjusted total construction spending increased 10.4% YoY in January. As per the February Manufacturing ISM Report on Business, the PMI improved and stood at 49.5% in February, up 1.3% from January. The PMI figure below 50% means the manufacturing economy is contracting. Consequently, the manufacturing index improved while the sector remained in contraction phase.
    Since the consumer spending, construction spending and manufacturing sector improved, so the investors sentiments improved as well. In addition, the 10-year treasury yield improved 5.2% on March 1. In March, the 10-year treasury yield gained nearly 0.4%, from March 1 till March 3. Owing to enhanced investor sentiments and improved treasury yield, mortgage rate also followed the trend and moved up. On the contrary, mortgage applications were down as the market composite index fell 4.8% over the week. The refinance index fell 7%, and purchase index fell 1% over the week. Improved mortgage rates hampered the mortgage related activity (refinancing, applications and purchase) which were up last week. If Federal Reserve decides to keep interest rate at the current level, then mortgage-related activities are likely to increase.

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