Mortgage Rate Trends: Weekly Market Trends & Forecast
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Wobbly World To Improve Mortgage Rates
August 21, 2015 -- According to the minutes of the July Federal Open Market Committee meeting, the Fed remained uncertain about whether or not it would be making a change to short-term interest rates come September. When the meeting was held, the available data suggested that the U.S. economy was generally improving from a lackluster first quarter, with rising employment and other brightening spots.
Although that's still the case, and there are still signs of improvement to be seen, the U.S. appears to becoming perhaps the only place where solid, reliable growth can be seen. Even then, running estimates of current GDP growth put the economy at perhaps a 1.5 percent clip, a deceleration from the 2.3 percent attained in the second quarter.
Since the last Fed meeting, new challenges have emerged. China has been struggling to stabilize and maintain its financial markets and recently devalued its currency, most likely help improve flagging export growth. Slowness there has spread throughout the economies of both developed and emerging nations, pressing Japan at least into a negative GDP in their latest quarter. Commodities prices have retreated, and oil prices are hovering close to $40 per barrel, down from closer to $50 just a few weeks ago. Inflation is potentially losing traction, not gaining. These are just a few of the emergent issues, and U.S. stock markets found themselves in a good old rout this week, will all major indexes losing 5 percent or more of value and pushing cash into the safe arms of U.S. Treasury bonds, driving yields lower.
Global troubles have been the American mortgage borrower's best friend throughout this soft recovery, and this continues to be the case.
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 didn't budge at all from last week, clinging to average rate of 4.01 percent. The FRMI's 15-year companion held rock steady again this week, holding for a third consecutive week at an average interest rate of 3.33 percent. Popular with first-time homebuyers, rates on fully-insured FHA-backed 30-year FRMs remain considerably below their conforming counterparts and remained steadfast this week at an average 3.81 percent. Lastly, the overall 5/1 Hybrid ARM trimmed three basis points off of last week's average, easing slightly to an average rate of 3.02 percent. Average rates for other products can be seen in 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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It's hard to reckon if these recent developments are sufficient to stay the Fed's hand next month. Just as a lot of change has occurred over the past three or four weeks, we have yet about four weeks until the next Fed meeting and a lot of change may occur between now and then. For the moment, odds still favor that the Fed will make a move, but whether they make a small move now or later is largely inconsequential, as we will probably not see another one for a good while -- six months or perhaps more -- after the first change, unless growth or inflation suddenly skyrockets. At the moment, both of those happenstances seem unlikely.
Meanwhile, the most recent economic news was pretty good, especially for housing. Housing starts improved by 0.2 percent in July, rising to a 1.206 million (annualized) rate of initiation. The mix of construction comprising the headline was tilted more in favor of single-family homes (782,000 annualized, up from 693,000 in June) than for multi-family, which eased from 511,000 in June to 424,000 in July). The change in mix is a positive factor, as single-family homebuilding has yet to play catch-up to the improvements in the broader market. Although they declined during the month, future activity should be pretty solid, as well, since permits for future construction were an annualized 1.119 million units, good enough for the third best reading this year.
Building homes is good for the economy, and certainly for the fortunes of those who build them. The latest Housing Market Index from the National Association of Homebuilders was about as rosy as it gets, sporting a value of 61 in the August report, a level last seen in 2006. Measure of single-family activity rang in at 66, up a tick from July, and expectations for the next six-month period were a stellar 70 again this month. Traffic at showrooms and model homes also improved, so the news was pretty good all around. Building homes is one thing, and selling another; we'll see how fast new home sales are moving come next week.
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Sales of existing homes dwarf the new home market, though, and improvements there have important economic consequences, too, most notably in the finance industry. Sales of existing homes rose a full 2 percent in July, climbing to a 5.59 million (annualized) pace. This was the fastest pace since 2007, when finance markets began to teeter and the flow of credit was starting to be curtailed, a precursor to the housing crash. While certainly "tighter" than those days, credit conditions are merely more traditional now than then, and the housing market is slowly recovering even though only better-quality borrowers are being served en masse. The three-month uptrend in sales isn't being met by additional inventory, though, and the 4.8 months of available supply are thin, and prices remain on a firm path, rising some 5.6 percent over-year ago levels.
Without new inventory coming on line (see new home construction above) it will be hard to keep existing home sales rising. However, the continued firming in prices does mean that for many homeowners, the "underwater mortgage" situation is on its way to being eradicated, and at some point that too should help loosen up inventories as new equity thresholds are reached.
We have known for months that manufacturing is in a struggle, what with a strong dollar trimming export opportunities and uneven growth (at best) among trading partners. A couple of looks at regional manufacturing strength found little to cheer about in this regard; for example, the Federal Reserve Bank of New York's Empire State Manufacturing Survey had been barely hanging onto positive territory in recent months, skirting back and forth over the zero line, but gave up in August with a 19 point fall to a five-year low reading of minus 14.9 for the month. New orders also slumped by double digits and employment and inventories also dropped.
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Down the New Jersey Turnpike to the Philadelphia district, the news was somewhat better, but not much. The Philly Fed's barometer nudged a touch higher in August, adding 2.6 points to manage a value of 8.3 for the month. However, excepting a small pop in June, this is little changed and continues a muted pattern that has persisted all year so far. In all, the bag for manufacturing is mixed at best, if and if other economies are fading at the moment it will be hard to expect much improvement anytime soon.
We know that inflation isn't much of a threat; in fact, if there is anything that might keep the Fed at bay, it's that inflation isn't making much of an upward move that might get us to the 2 percent annual level of price increases they feel is optimal. The Consumer Price Index chugged along at a lower level in July, rising by just 0.1 percent in the headline reading. Both food and energy costs settled back last month relative to June, so the slight increase was mostly from "core" inflation, a measure that excludes these items. "Core" inflation rose by 0.1 percent. On a longer timeline, headline CPI is running at just a 0.2 percent rate, while core is holding a 1.8 percent clip at the moment.
The Fed prefers to review a different measure of inflation based upon Personal Consumption Expenditures (PCE); although there are differences in levels, all inflation indicators will generally track one another, and at the moment, there's not much inflation to be seen.
We might not see much future price pressures, either, if the economy doesn't pick up some steam. The Conference Board's index of Leaving Economic Indicators put in its softest showing since February, falling with a thud to a value of minus 0.2 in July after three consecutive 0.6 percent gains. The economy should still have some momentum as we go deeper into the third quarter but it does seem to have gotten off to a bit of a slow start for the period.
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for eleven mortgage products, including Hybrid ARMs.
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The labor market has been a bright spot for much of the year, and sustained (if at times uneven) improvement there is arguably the reason the Fed will make a September move. The June and July employment reports were both solid enough, and there aren't yet any indications that August's report will be any different. The number of new claims for unemployment benefits has been holding in a sub-300,000 pattern since early this year, and that string continued in the week ending August 15, as just 277,000 new applications for assistance were filed.
The yin and yang of the economy (and economies elsewhere) make it hard to reckon where we are going with much certainty. Mortgage rates will certainly be affected by the Fed's decision whenever it comes, probably more from the termination of the recycling of inbound funds than any small move in the Federal Funds rate. That said, we're about a month (and a mountain of new data) away from even the possibility of a change, and until then, we have to watch the economic tides for clues.
This week's stock market rout and fresh evidence of a wobbly world economy will certain bring us lower mortgage rates, at least early in the week, but it would seem that Treasuries are getting more of a buy than are mortgages, so the downturn in underlying interest rates may not be fully translated into mortgages. We also have a fair bit of domestic data to wade through, too, including an update to the second quarter GDP report and consumer confidence and sentiment indexes and more.
We might see perhaps a 5-7 basis point fall in the FRMI by the time the week comes to an end. In the meanwhile, we'll be contemplating our next Two-month Forecast; in light of recent events, that should be a fun endeavor.
For a longer-range outlook for rates and the economy, one which will take you up until late August, 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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