PMMS : U.S. Mortgage Rates Continue Downward Trend

by Ike Obudulu Posted on August 24th, 2018

McLean, Virginia, USA : Mortgage rates decreased for the third straight week to their lowest level since mid-April with 30-year fixed at 4.51%, the results of its Primary Mortgage Market Survey® (PMMS®), released by  the Federal Home Loan Mortgage Corporation, Freddie Mac (OTCQB: FMCC) Thursday show.

30-year fixed-rate mortgage (FRM) averaged 4.51 percent with an average 0.5 point for the week ending August 23, 2018, down from last week when it averaged 4.53 percent. A year ago at this time, the 30-year FRM averaged 3.86 percent.

15-year FRM this week averaged 3.98 percent with an average 0.5 point, down from last week when it averaged 4.01 percent. A year ago at this time, the 15-year FRM averaged 3.16 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.82 percent with an average 0.3 point, down from last week when it with an average 3.87 percent. A year ago at this time, the 5-year ARM averaged 3.17 percent.

Borrowers may still pay closing costs which are not included in the survey. Average commitment rates along with average fees and points reflect the total upfront cost of obtaining a mortgage.

Sam Khater, Freddie Mac’s chief economist, says mortgage rates inched backward this week to their lowest level since mid-April. “Backed by very strong consumer spending, the economy is red-hot this month, which is in turn rippling through the financial markets and driving equities higher,” he said. “Unfortunately, the same cannot be said about the housing market, where it appears sales activity crested in late 2017. Existing-home sales have now stepped back annually for the fifth straight month, and purchase mortgage applications this week were barely above year ago levels.”

Added Khater, “It is clear affordability constraints have cooled the housing market, especially in expensive coastal markets. Many metro areas desperately need more new and existing affordable inventory to break out of this slump.”

“Mortgage rates have hit the late-summer doldrums, holding steady over the past week and remaining almost exactly where they stood a month ago,” said Aaron Terrazas, senior economist at Zillow. “Financial markets are typically quiet in the final weeks of August, and there was very little major economic news to jolt their trajectory. … New-home sales data, which typically doesn’t move the market, could spook fears of a slowing housing market if they disappoint.”

Existing-home sales data, which was released earlier this week, did disappoint. Sales declined 0.7 of a percent in July, marking the fourth month in a row of declines and the longest slump since 2013. Rising prices and higher mortgage rates have put a damper on the market.

“It is clear affordability constraints have cooled the housing market, especially in expensive coastal markets,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “Many metro areas desperately need more new and existing affordable inventory to break out of this slump.”

The Federal Reserve expressed its concerns about the housing market this week. In the minutes from its July 31-Aug. 1 meeting, which were released Wednesday, the central bank noted that home building had eased. Higher mortgage rates, scarcity of land, delays in building approvals, labor shortages and tariffs are contributing to the problem. The Fed noted that “wide-ranging tariff increases . . . included the possibility of a significant weakening in the housing sector.”

The minutes also signaled another rate hike next month. Because the market already anticipates the move, it is unlikely to affect home loan rates much., which puts out a weekly mortgage rate trend index, found that nearly two-thirds of the experts it surveyed say rates will remain relatively stable in the coming week. Shashank Shekhar, chief executive of Arcus Lending, is one who predicts rates will hold steady.

“Mortgage rates will remain the same,” Shekhar said. “Weekly fluctuations notwithstanding, mortgage rates this week are exactly at the same point where they were in mid-April. After a sudden hike at the beginning of the year, we are now in the fourth month of stable rates. That shouldn’t change this week. If anything, President Trump’s potential problems with [Paul] Manafort and [Michael] Cohen can be a reason to park money in safe instruments like bonds, which usually help lower the mortgage rates.”

Meanwhile, four weeks of declining rates finally caused applications to reverse their downward slide, according to the latest data from the Mortgage Bankers Association. The market composite index — a measure of total loan application volume — increased 4.2 percent from a week earlier. The refinance index jumped 6 percent from the previous week, while the purchase index rose 3 percent.

The refinance share of mortgage activity accounted for 38.7 percent of all applications.

“After several weeks of declining application activity, both purchase and refinance applications increased last week,” said Joel Kan, an MBA economist. “Refinance applications, partially helped by the rate decrease, led the way with a 6 percent increase over the week but were low by historical standards and 33 percent below this time last year. Purchase applications increased almost 3 percent and were up a bit compared to last year, but were still below their 2018 average due to persistent problems of affordability and low inventory.”

Freddie Mac makes home possible for millions of families and individuals by providing mortgage capital to lenders. Since it’s creation by Congress in 1970, Freddie Mac has made housing more accessible and affordable for homebuyers and renters in communities nationwide. We are building a better housing finance system for homebuyers, renters, lenders and taxpayers.

Primary Mortgage Market Survey Definitions

Commitment Rate : The interest rate a lender would charge to lend mortgage money to a qualified borrower exclusive of the fees and points required by the lender. This commitment rate applies only to conventional financing on conforming mortgages with loan-to-value rates of 80 percent or less.

ARM Index ; The one-year Treasury

Loan to Value Ratio (LTV) : The ratio of the loan amount of a mortgage loan to the lower of the appraisal value or purchase price of the property securing the loan.

Origination Fees and Discount Points : The total charged by the lender at settlement. One point equals one percent of the loan amount.

Margin : A fixed amount added to the underlying index to establish the fully indexed rate for an ARM.

Primary Mortgage Market Survey

Since April 1971, Freddie Mac has surveyed lenders across the nation weekly to determine the average 30-year fixed-rate mortgage rate; in 1984, the 1-year ARM was added to the survey and the 15-year fixed-rate mortgage rate was included beginning in 1991. In January 2005, Freddie Mac added a 5/1 hybrid ARM series to the survey. In January 2016, the 1-year ARM was discontinued.

Currently, about 25 lenders from each of Freddie Mac’s five regions are surveyed each week. The mix of lenders surveyed approximates the volume of mortgage loans that each lender type originates nationwide.

Survey reminder emails are sent out on Mondays and lenders are asked to respond by close of business Wednesday. If we have received no response on Tuesday, Freddie Mac follows up with a reminder email on Wednesday morning. Freddie Mac receives a few responses on Monday, but most responses are returned on Tuesday with the balance received on Wednesday. So, in general, the PMMS rates reflect loans offered Monday through Wednesday.

The survey results each week are weighted based on the most recently released dollar volume of conventional, single-family originations within the Freddie Mac one-unit loan limit reported under the Home Mortgage Disclosure Act (HMDA) data – prior survey averages are not adjusted. The HMDA data are typically published in September of each year for the immediately prior year. To do the weighting, Freddie Mac takes the HMDA state origination volumes and aggregate them to the five regions to establish regional weightings. A national average is then calculated as the weighted average of the five regional averages. In addition, when calculating the regional averages, we discard any rate/point combination outlier that is more than one standard deviation from the region’s mean.


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