Freddie Mac Sees Rates Lower for Longer as Lending Activity Cools

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Economic Report Monitor #19
April 22nd, 2020

 Midway through the week, markets stabilize slightly after trading in commodity and equity markets open the week in volatility. Economic indicators reflect that as well as a couple of quiet reports come out during the pause. The volatility feels in no way over though as policymakers start to ponder the reopening process. These plans for easing the lockdowns will come on the backs of a fresh new stimulus bill passed through the Senate already mainly focused on bolstering the Paycheck Protection Program.

The first report this morning was another week of MBA Mortgage Applications. The composite index came in at a flat -0.3% as the Purchasing index grew 2.0% and the Refinancing index fell -1.0%. Mortgage rates sit just above the lows with the 15-year fixed rate at 3.22% and the 30-year fixed rate at 3.62%, up 24 basis points and 17 basis points off the 52-week lows. Data will probably start to trend downward as homebuyers see their economic prospects worsen as the lockdown continues.


Other early real estate market reports confirm the likelihood of softer lending activity notably a sharp drop in existing home sales, home starts, and permits issued. Forecasts from Freddie Mac published early April project 30-year primary mortgage rates to stay low through 2020 and reach even lower in 2021. Total home sales aren't projected to recover to pre-outbreak levels until 2021 Q2. Refinancing activity is likely to peak this quarter while purchasing activity will continue to drop into the latter half of the year. However, Freddie Mac even admits its forecast is "relatively optimistic for the economy."

After crazy trading over the past two days, the EIA released another week of supply estimates. This week, the organization announced that it would begin posting working storage capacity utilization from Jan 17th, 2020 onward. Over March and April, utilization jumped from 48% to 60% in the US with Cushing, OK utilization up from 47% to 76%. As domestic production remains high, at 12.2 million b/d after a 100k b/d drop this week, this extra layer of data will provide a better view of the oil and gas industry reaching capacity. The trend continues as stockpiles grew 15 million barrels, now 43.8% above last year's level. Some respite comes from lower net imports, down -197k b/d, a smaller decrease in refinery inputs, down only -209k b/d, and a slight recovery in products supplied, up 306k b/d. Oil prices rebounded today, up almost 30%.


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