Mortgage Rate Trends: Weekly Market Trends & Forecast
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Market Turmoil Fosters Mortgage Rate Slide
New Two-Month Rate Forecast at HSH.com
August 28, 2015 -- A rough week for global financial markets has helped mortgage rates to slip back a little bit, but not as much as you might have expected given the shouting headlines of 1,000 point drops in the Dow Jones Industrial Average and other huge declines in major exchanges across the world.
Financial markets are responding to an accumulation of items, ranging from various central bank currency devaluations, on-going ECB stimulus, China's failing attempts to manage its stock market, subsequent moves to try to stimulate a flagging economy there and the repercussions of all these changes and expected changes in economies around the world.
As important as they are, not all folks own stocks and so are insulated from the vagaries of the markets. Provided banks don't close, access to credit doesn't seize up and the economy doesn't tank as a result, even sizable moves in stock market averages probably doesn't mean much all around. Frankly, if you didn't worry about changes in the hundreds of points on a regular basis over a short time frame on the way up, you probably shouldn't spend much time fretting over it on the way down. Regardless, markets generally ultimately tend to try to find balance one way or the other, if rarely in an orderly fashion.
With the worst of the selloff perhaps behind us (the Dow, for example, finished the week down by only 348 points) and after a pretty good rebound, financial markets ended the week quietly. Buttressed by a fair bit of good economic news, mortgage rates didn't find all that much space to decline.
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 fell an as-expected seven basis points this week, dipping to average rate of 3.94 percent, its lowest value since early May. The FRMI's 15-year companion encountered a seven basis point trimming of its own, easing to an average 3.26 percent this week. Popular with first-time homebuyers, rates on fully-insured FHA-backed 30-year FRMs remain considerably below their conforming counterparts but managed just a four basis point fall, slipping back to an average 3.81 percent. Lastly, the overall 5/1 Hybrid ARM followed its fixed-rate cousins step for step, with a seven basis point decline dropping the average to 2.95 percent. For averages of other mortgage products and more, see HSH's Statistical Release. HSH's FRMIs are combined averages and include both conforming and jumbo rates, providing borrowers with the widest possible view of mortgage conditions.
See this week's Statistical Release and Mortgage Trends Graphs.
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Much good news about the economy came in the form of the second review of second quarter growth. Originally estimated last month to be running at a 2.3 percent clip, GDP growth was kicked up to a fairly hot rate of 3.7 percent for the quarter. This was the fastest pace since the third quarter of 2014, and will likely provide more momentum for third quarter growth then was previously expected.
That momentum was seen in the latest National Activity Index from the Chicago Federal Reserve Bank. An amalgam of some 85 economic indictors, the temperature of the economy improved in July, rising from a cool -0.07 in June to a much warmer +0.34 during the month. The July figure was just the second positive value seen this year, as the trend for the economy has been a muted one. The NAI uses a value of zero as a baseline, and values above or below it indicate if the economy is growing above or below trend (aka "potential") thought to be a GDP of perhaps 2.6 percent or so. The acceleration in the NAI in July would put us a bit above that rate.
New orders for durable goods popped a full 2 percent higher in July, a nice follow-up to a 4.1 percent gain in June. Defense orders drove the headline figure higher, as they gained some 23 percent during the period. However, the measure of "core" orders by businesses (excluding defense spending and pricey transportation items) managed a solid 2.2 percent gain to start the third quarter, so it would appear that business spending continued to come back around after a number of lean months earlier in the year.
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Sales of new homes rebounded a bit after a sluggish June. July's 507,000 annualized rate of new homes sold at a rate some 5.4 percent faster than in the prior month; even so, the current monthly rate is dead average when the whole of the last six months are taken into account, and are still sub-par. Supplies tightened a little bit, to 5.2 months of inventory available at the current rate of sale, down from 5.2 months. The 218,000 units built and ready for sale is the highest number of the expansion to date, but the general trend seen here is one of a very gradual build of inventory as builders remain cautious amid firm but still historically tepid demand.
Personal incomes powered ahead by 0.4 percent in July, a fourth consecutive 0.4 percent gain. As tallied by the Bureau of Economic Analysis, wages and salaries accelerated by 0.5 percent last month, and two of the last three months has picked up relative to earlier in the year. As "slack" in the labor markets has been diminishing, a key signal for the Federal Reserve that its time to start to move would be an upturn in wages, and it's not beyond reason that we may be seeing wages beginning to pick up a little bit. Spending by consumers rose 0.3 percent last month, and more income than outgo had a positive effect on the nation's rate of saving, which edged up to 4.9 percent in July. With consumers still only adding modestly to credit balance, these accumulations of cash have tended to support later spending, pressing the expansion onward.
Consumer moods are either greatly improved or not improved at all, depending upon which series of evaluations you prefer. The Conference Board reported a 10.5-point rise in their indicator of Consumer Confidence for August, putting us close to the high for the expansion attained back in January. Assessments of both the present and expectations for the future improved by more than 10 points. Although happier consumers are thought to be likely to open their wallets to a greater degree, plans for buying homes, autos and appliances all eased back during the month.
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Countering the ebullience of the Confidence report was the final August release that covers Consumer Sentiment from the University of Michigan. According to the report, sentiment slipped during August, with the barometer here declining by 1.2 points to slip to 91.9 for the month, the second lowest level of the year. Unlike its Confidence counterpart, evaluations of both current conditions and those yet to come dimmed somewhat. If it was even possible to do so, averaging the two reports would leave us with a mild gain, so we'll use that mindset to clear the ambiguity of the two reviews for at least the moment.
Unambiguous is the steady low level of new unemployment claims. This continues to be a wonderful broken record, repeatedly holding in a very favorable pattern for almost all of 2105, and regularly pointing to ongoing strength in the labor market. During the week ending August 22, just 271,000 new applications for assistance were filed around the country, down a little from the week prior and a level that compares well with the lowest values of the year.
All good news aside, the drumbeat of difficult market conditions for manufacturers continues apace. Two more regional looks at manufacturing activity found little of that to be seen, as the report from the Kansas City Federal Reserve Bank revealed a sixth consecutive negative reading in August, when their measuring stick showed a minus 9 for the month. To the east a bit, the Richmond Federal Reserve's district report fell to a flatline of zero in August after three positive months.
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HSH's Statistical Release features charts and graphs
for eleven mortgage products, including Hybrid ARMs.
Our legacy state-by-state statistics are now here.
After an uneven recovery a few years ago, we have endured a mostly uneven expansion, buffeted by this tide or that wind, both domestically and from other shores; this continues. The steady grind of the expansion has proven durable, if lackluster at times, but there's nothing at all wrong with a sustained modest pace of expansion, even as we of course hope for better. If growth doesn't get too warm, then neither will inflation, keeping long-term rates low and keeping the Fed from needing to jack up short-term rates quickly.
On a wider scale, a long, long period of record-low or near record low interest rates is nearing a close. That's not to say that we'll see skyrocketing rates anytime soon, but more likely a modest, gentle upslope over a longish period of time. As we've pointed out on a number of occasions, consider that way back in 2003, the Federal Funds rate was trimmed all the way back to a flat 1 percent, a record low for the time. At the moment, we are almost a full percent below that former record, and getting us back to even that that former-record-low-but-somehow-now-a-lofty-level will take perhaps a full year from whenever the Fed starts to change policy. We think that they should take the plunge, and start next month. In fact, it's the dominating topic in our new Two-Month Forecast.
In the meanwhile, we've got the unofficial end of summer coming up. Unlike many years, it was certainly an eventful one in many ways. After a week like this, it's hard to recall those soft, sanguine days summer doldrums past, but if history is any indication, September's pace usually quickens relative to August's, so we could have a very active month on tap.
Next week, though, it would seem to us that rates will firm back up by a few basis points from this week's small easing. Call it a rise of three basis points in HSH's FRMI.
For a longer-range outlook for rates and the economy, one which will take you up until mid-October, have a look at our new Two-Month Forecast. For a really long-range outlook, you'll want to check out "Federal Reserve Policy and Mortgage Rate Cycles".
Still underwater in your mortgage despite rising home prices? Want to know when that will come to an end? Check out our KnowEquity Underwater Mortgage Calculators to learn exactly when you will no longer have a mortgage balance greater than the value of your home.
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Daily FRMI rates are available at HSH.com Check out our weekly Statistical Release here (and archives here).
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