Average mortgage rates drop as rhetoric over China heats up

Mortgage rates continued to decline during May, as fears over a possible trade war with China drove investors into safer instruments, according to Freddie Mac.

The 30-year fixed-rate mortgage averaged 4.1% for the week ending May 9, down from last week when it averaged 4.14%. A year ago at this time, the 30-year fixed-rate mortgage averaged 4.55%.

Over the past two weeks, the 30-year FRM has dropped 10 basis points; during April it rose 14 BPs.

"Investors wary of the current economic situation due to ongoing trade disputes resorted to the bond market, causing the 10-year treasury yield to decrease," Sam Khater, Freddie Mac's chief economist, said in a press release. "A combination of low mortgage rates, a strong job market and modest wage growth should spur homebuyer interest and also serve as an incentive for homeowners looking to refinance this spring."

President Trump's threat to raise tariffs on Chinese goods took center stage in investors' minds in a week light on economic data releases, Matthew Speakman, an economic analyst at Zillow, said when that company released its rate tracker.

"The president's message fanned the flames of a trade dispute that had previously appeared to be nearing its conclusion. Investors subsequently fled to a safe haven in the form of bonds, which pushed mortgage rates downward," Speakman said. "For months, expectations that the lengthy trade dispute would come to an amicable conclusion have buoyed Treasury yields — and mortgage rates — despite other forces nudging them downward."

The 15-year fixed-rate mortgage this week averaged 3.57%, down from last week when it averaged 3.6%. A year ago at this time, the 15-year fixed-rate mortgage averaged 4.01%.

The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.63% with an average 0.4 point, down from last week when it averaged 3.68%. A year ago at this time, the five-year adjustable-rate mortgage averaged 3.77%.

The trade dispute with China is likely to be the biggest mover of mortgage rates in the following weeks.

"Hope remains that the two nations will soon reach a deal, but rates will remain vulnerable to trade-related news in the coming days either way, particularly in the absence of market-moving economic data releases," Speakman said. "Should the talks completely fall apart, and a more damaging global trade war ensue, this week's mortgage rate declines will likely appear modest in retrospect."