Rates Continue to Rise Based on Economic Tension
Mortgage rates increased another 10 basis points last week, according to the Freddie Mac Primary Mortgage Market Survey released October 24th. This is now four consecutive weeks of increases as the continued strength in the economy drives mortgage rates higher. Over the last few years, there has been a tension between downbeat economic narrative and incoming economic data stronger than that narrative. This has led to higher-than-normal volatility in mortgage rates, despite a strengthening economy.
Mortgage applications decreased 6.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending October 18th. “Mortgage rates saw mixed results last week. Application activity decreased to its lowest level since July, as both purchase and refinance applications saw declines,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Purchase applications continued to run stronger than last year’s pace for the fifth consecutive week. Even though rates have been on a recent upswing, they are over a full percentage point lower than a year ago, which has kept some homebuyers in the market. For-sale inventory has started to loosen, and home-price growth has eased in some markets, providing more options for buyers in combination with these lower rates.”
Existing home sales dropped to a 14-year low in September, weighed down by higher mortgage rates and house prices. Home sales fell 1.0% last month to a seasonally adjusted annual rate of 3.84 million units, the lowest level since October 2010, the National Association of Realtors said on Wednesday. The second straight monthly decline in home resales reinforced economists’ views that the slump in residential investment, which includes homebuilding, deepened in the third quarter. Though supply has improved, entry-level homes remain scarce in most regions of the country, keeping home prices at levels that are unaffordable for most first-time buyers. “It will take more rate cuts and more options to bring buyers back,” said Jennifer Lee, a senior economist at BMO Capital Markets.
Weekly jobless claims unexpectedly fell last week in a sign that turnover in the labor market remains low. New data from the Department of Labor showed 227,000 initial jobless claims were filed in the week ending Oct. 19, down from 241,000 the week prior and below the 242,000 economists had expected, per Bloomberg data. Thursday’s data shows claims have reversed an upward trend seen in September that had brought the metric to its highest levels in more than a year. “It is important to keep in mind that the data is likely distorted to the upside due to residual damage from the hurricanes that hit the South and knock-on effects of the ongoing Boeing machinist’s strike,” Jefferies US economist Thomas Simons wrote in a note to clients on Thursday.
