5/27/2015
By Jennifer Coombs

With the average rate on the 30-year fixed mortgage now back above 4.0%, borrowers are starting to pull back from purchasing activity during the busiest time for the housing market. According to the Mortgage Bankers Association (MBA) the total volume for mortgage applications fell by 1.6% in the week ended May 22^nd over the prior week. While overall mortgage volume is still higher than a year ago, it has fallen by a total of 10.0% in the last four weeks. Refinancing applications are very rate-sensitive, and dropped by 4.0% over the prior week with refinancing applications now making up 51% of all applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased by 30 basis points to 4.07%, with points increasing to 0.35 from 0.32 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. While mortgage rates haven’t moved much in the past few days, there has been plenty of volatility in the past few weeks. Judging by the new housing data, the demand for homes is strong, however it’s clear that the consumer is still worried and paranoid about rising rates.

Also worth noting from Tuesday’s (5/26) session was Markit’s initial reading on the purchasing managers index (PMI) for the US services sector. Strength in the service sector is slowing slightly according to Markit’s preliminary reading, down by 1 point in May to 56.4 for the second-lowest reading so far this year. The growth in new orders is the slowest so far this year, with the build in backlog orders at a 10-month low. However, it’s encouraging that the strength in the report is centered on hiring, which is up for the 5^th month in a row. Strength in hiring obviously points to business confidence, and this caused the year-ahead outlook to jump sharply to the best reading since November 2014. With both the housing and the manufacturing sector still trying to get into gear for the rest of the year, the service sector is clearly carrying the US economy.

Jennifer Coombs
Wall Street Strategies

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