Warmer economy, sunnier dispositions, firmer ratesby Tim Manni
As expected, the decline in mortgage rates leveled off last week. Months of sour economic news followed by new Fed assistance drove rates to record lows on a regular basis throughout much of the summer. The data which characterizes the economy has turned a just bit warmer in recent weeks, and mortgage rates have stopped falling, for at least the moment.
There’s nothing to suggest that any outbreak of growth is ready to occur, but the downturn of the spring which produced 1.25 percent GDP growth in the second quarter does appear to have given way to something stronger than that in the third quarter, where we might be running closer to 2 percent GDP than not.
As July and August were economically lukewarm, most of the mild acceleration seems to have come in September, but nothing strong enough as to push interest rates upward by much. Overall, it’s more a case of an absence of bad news than a wide-ranging spate of good news, but there are bright spots to be seen.
Mortgage rates rise
HSH.com’s broad-market mortgage tracker–our weekly Fixed-Rate Mortgage Indicator (FRMI)–found that the overall average rate for 30-year fixed-rate mortgages (conforming, nonconforming and jumbos) rose by five basis points (0.05 percent) to 3.73 percent, breaking a six-week slide.
The FRMI’s 15-year companion rose by just three basis points to land at 3.03 percent.
FHA-backed 30-year FRMs nudged up by two basis points, as the most viable option for credit- or equity-impaired borrowers bumped up to 3.30 percent. Finally, the overall average rate for 5/1 Hybrid ARMs moved for the first time in a month, rising by two basis points to 2.72 percent.
Consumer moods have brightened
Some corroborating evidence of a pickup may be reflected in improving consumer attitudes. Although suffering a 1.6 point downturn in the week ending October 7, the weekly Bloomberg Consumer Comfort Index had been on a six-week upward run where it erased over ten points of negativity. The latest value of minus 38.5 can still be counted among the best seen this year.
Ringing in with its best showing since September 2007, the preliminary October value of the University of Michigan Index of Consumer Sentiment was a bit of a surprise. The 83.1 mark for the indicator was a 4.8-point rise from the final September value, driven upward by a marked improvement in the outlook for the future. Given all the persistent challenges facing the economy and elevated gasoline prices, we wonder if the improvement is in part related to the Fed’s move to further support the economy, announced on September 13.
Mortgage rates can still fall
In the face of warmer economic news, can mortgage rates resume their decline? Certainly, it’s possible, but this will depend to some degree upon the Fed’s aggressiveness in snapping up new securities; more likely it would take a falloff in demand for mortgage credit for that to occur.
Lenders are busy at the moment, and don’t need to push lower rates into the market to attract new business, and least some lenders are probably busy enough as to not want any new business, since they cannot adequately handle any increase in demand. This is arguably true for other folks in the system, too, including inspectors, appraisers and the like.
We’ll get some additional sense of any economic acceleration this week, especially from the housing sector. We’re of the mind that the collective tenor of the data will be firm to slightly warmer, as much of the September and early October data have seemed to be, and that mortgage rates may firm up by a couple of basis points by the time the week is out.