PMMS : U.S. Mortgage Rates Creep Back Up

by Ike Obudulu Posted on September 9th, 2018

McLean, Virginia, USA : Mortgage rates have started creeping back up again. The 30-year fixed-rate mortgage inched higher for the second straight week. The 30-year fixed-rate average rose to 4.54 percent with an average 0.5 point, the results of its Primary Mortgage Market Survey® (PMMS®), released by  the Federal Home Loan Mortgage Corporation, Freddie Mac (OTCQB: FMCC) Thursday show.

Points are fees paid to a lender equal to 1 percent of the loan amount.

It was 4.52 percent a week ago and 3.78 percent a year ago.

The 15-year fixed-rate average increased to 3.99 percent with an average 0.4 point. It was 3.97 percent a week ago and 3.08 percent a year ago. The five-year adjustable-rate average climbed to 3.93 percent with an average 0.3 point. It was 3.85 percent a week ago and 3.15 percent a year ago.

“Mortgage rates edged higher for the second week in a row, propelled by a steady string of strong manufacturing data and the prospect of another round of tax cuts,” said Aaron Terrazas, senior economist at Zillow. “Rates remain below their springtime highs, but are approaching the upper end of the relatively narrow range where they spent most of the summer. Markets will likely focus on Friday’s monthly jobs report — strong employment gains or wage growth could put additional upward pressure on rates — as well as several high-profile Fed speeches this week.”

Mortgage rates are influenced by several factors but they tend to follow the movement of the 10-year Treasury bond. When yields move higher, home loan rates often follow. This week, the yield on the 10-year bond grew to 2.90 percent, the highest it has been in four weeks.

“Borrowing costs may be slowly on the rise again in coming weeks, as investors remain optimistic about the underlying strength of the economy,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “It’s important to note that rates are now up three-quarters of a percentage point from last year and home prices — albeit at a slower pace — are still outrunning rising inflation and incomes.

This weakening in affordability is hindering many interested buyers this fall, even as the robust economy brings them into the market. The good news is that purchase mortgage applications have recently rebounded to above year ago levels., which puts out a weekly mortgage rate trend index, found more than half of the experts it surveyed say rates will continue to rise in the coming week. Michael Becker, branch manager at Sierra Pacific Mortgage, is one who expects rates to increase.

“The first trading day of September saw a sell-off in Treasurys and mortgage-backed securities resulting in higher rates to start the month,” Becker said. “The weakness in bonds started before economic data was released, perhaps because bonds were in overbought territory. Looking forward, it would take a negative economic surprise for bonds and rates to rally. I don’t see that as a likely outcome over the next week, so I imagine rates will rise a little in the coming week.”

Meanwhile, mortgage applications were flat, according to the latest data from the Mortgage Bankers Association. The market composite index — a measure of total loan application volume — decreased 0.1 percent from a week earlier. The refinance index fell 1 percent from the previous week, while the purchase index ticked up 1 percent.

The refinance share of mortgage activity accounted for 38.9 percent of all applications.

“Mortgage application volume barely moved, as an increase in seasonally adjusted purchase applications nearly offset a decrease in refinances,” said Bob Broeksmit, MBA president and chief executive. “Purchase demand, 2 percent higher than the same week one year ago, continues to be supported by the strong job market, although home prices continue to rise faster than household income. In a promising sign that first-time home buyers are entering the market in greater numbers, average loan size for purchase loans dropped to its lowest level in our survey since December 2017.”

“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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