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US Mortgages Rise as Attention turns to the Fed

Thought for Thursday, US average fixed rate mortgages rise for the first time in four weeks making them almost double the level of three years ago, signs of pressure for UK car manufacturing as data shows car production slipping, and this morning sees VAT in focus.

Thought for Thursday
“Lost dollars are simply harder to replace than gained dollars are to lose.” – Michael Burry

US Mortgages Rise as Attention turns to the Fed

Yesterday, the Mortgage Bankers Association of America indicated that average 30-year fixed rate mortgages rose for the first time in four weeks in the US. The latest data showed a marginal rise of 8bps from last week (which itself was the lowest in a month) to 6.85% for the average 30-year fixed-rate mortgages backed by the FHA.

Given that this is more than double the level of three years ago, millions of mortgage holders across the States continue to feel the squeeze as attention turns to the Fed’s interest rate decision on 12 June. Going into the year, mortgages holders were expecting to see the Fed cut some six times over the course of 2024.

However, giving stubbornly high inflation, a robust labour market and a string of strong growth figures, markets are not now pricing in any chance of a rate cut. What’s more, markets are pricing in just around a 75% chance of 25bps cut by 7 November.

This comes as markets look for any forward guidance from Fed speakers John Williams and Lorie Logan today.

Back on mortgages, the MBA’s Vice President said that “Both purchase and refinance applications fell, pushing overall activity to the lowest level since early March. Borrowers remain sensitive to small increases in rates, impacting the refinance market and keeping purchase applications below last year’s levels”.

Indeed, a recent report from the New York Fed suggested that of those renting they see there’s a 60% chance that they’ll never be able to afford home ownership. It’s also worth noting that this is the highest level since they started doing the survey ten years ago.

The rise in mortgages raises fears that US consumer spending will be dampened with a slowdown in the labour market also likely as employees look for greater security.

UK Car Manufacturing Slows

The UK’s car industry is showing signs of coming under pressure given the latest data release which showed car production slip 7% on an annual basis for the month of April.

This marked the second consecutive month of contraction with the shift to EV production and phasing out of some older models being cited as a key factor. Like many other sectors, the industry has also been heavily impacted by supply chain issues and chip shortages.

Here, exports fell 12.7% which given that the UK exports 80% of the cars it produces accounted for the lion’s share of the fall.

Electric vehicles also accounted for over 40% of all cars produced in the UK over the month with big players including Nissan and Jaguar announcing plans to invest in EV manufacturing. This marks around a 2 percentage point increase from a year ago.

VAT in Focus

VAT is heavily in focus this morning with representatives from Labour, the Conservatives and the Lib Dems indicating that they would not increase the tax. Writing in The Telegraph, the Chancellor yesterday ruled out an increase in VAT and accused the Labour Party of planning to increase it. However, just a short while after Hunt’s article was published, the shadow chancellor Rachel Reeves similarly ruled out an increase, saying that Hunt’s claims were merely “nonsense”.  For more on VAT keep your eyes out for this month’s WTFX article where we’ll take a deep dive into the topic.

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