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Mortgage Rate Trends: Weekly Market Commentary & Forecast

HSH Market Trends
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Housing Inventory, Rates Running Low

April 14, 2017 -- The traditional spring homebuying season is coming up to speed, and mortgage rates are doing their part to help keep demand flowing. Optimism about prospects for the future and a more active Federal Reserve helped interest rates to rise a little at the end of last year, but there wasn't enough lift to do much more than curtail some potential refinance business. Mortgage rates remain low enough so as not to be a barrier for buying a home; however, while financing conditions remain generally accessible to borrowers of decent means, available financing means little if there's little worth buying.

That's the issue in many housing markets this spring; plenty of wanna-be homebuyers, ample mortgage money and very thin inventories of homes to buy available at ever-escalating prices. At some point, one or the other side will give; rates may rise, leaving financing less affordable, and in turn, trimming demand; prices may continue to rise even if rates remain much the same, producing largely the same effect. With lessened demand, stockpiles of available homes would have some time to refill, prices would tend to level, and a better equilibrium would be attained. Of course, that would be a "perfect world" scenario, and the history of real estate markets isn't usually one that finds balance, but rather booms and busts. How this particular cycle plays out remains to be seen, but right now its one consisting of plenty of demand and little supply.

What's happeing with home prices? Which markets have recovered... and which still lag behind? Check out the 4Q16 update to HSH's Home Price Recovery Index, covering price changes in 100 metropolitan areas -- and see our Home Value Estimator tool to reckon changes in your market during your ownership period!

Headlines stating "lowest mortgage rates of 2017" probably won't help matters, either, simply adding a sense of urgency to home-seekers actively in the market or considering jumping in. Rates did ease just slightly this week, with the average conforming 30-year FRM falling just two basis points, but enough to trigger "lowest" headlines. In reality, rates aren't all that much different than last week, or the week prior to that. To be fair, the difference in monthly payment for a $200,000 loan at the year's peak of 4.3 percent versus this week's 4.08 percent is all of $25; while this isn't nothing, the difference in buying power is negligible for a home shopper in a bidding war.

Lower rates this spring are a result of an old friend of the American mortgage shopper: difficult issues around the world finding investors looking for relatively safe places to put their money. Wide-ranging political issues in Syria, North Korea, Russia, Afghanistan, France, the U.K. and other places (not to mention various economic items) are fostering a move to the safety and quality of bonds, pressing yields down. The down draft in rates is also due to a lessening of optimism that President Trump's economic agenda will have positive effects anytime soon. That said, with the economy marching along here and showing signs of improvement elsewhere, central banks are either raising rates or otherwise considering reductions in various stimulus programs; absent a "shock" event, this will tend to limit how far rates can actually fall.

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Although inflation here has been on a generally steady upward run for several years, there was a break in the trend in March. Largely due to a fall in petroleum and fuel prices, costs of imported goods settled back by 0.2 percent during the month, the first decline since November and the largest dip since last August. On a year-over-year basis, the costs of imported goods are some 4.2 percent higher now than then, trimming the top off last month's (so far) peak of 4.8 percent; as recently as 6 months ago, import prices were declining by 1.1 percent on an annual basis. Export costs didn't follow import prices down, but instead had a mirror-image rise of 0.2 percent and are still in a year-over-year rising pattern, with the latest annual rate now up to 3.6 percent. Rising import costs will eventually be passed along the supply chain, but how much ends up in actual consumer price inflation isn't clear.

Upstream of the consumer, the Producer Price Index also stepped back in March, declining by 0.1 percent, the first fall in 7 months, with lower energy costs dragging things downward. While overall prices for both goods and services did contribute to break the string of increases, the measure of "core" PPI continued along in its upward trend with a 0.4 percent increase for the month. On an annualized basis, both overall and core PPI are running at a 2.3 percent annual clip and remain in an uptrend despite the March faltering.

Consumer prices lost some traction in March, too. Led by that same decline in energy costs that lowered import and producer prices, the overall CPI declined by 0.3 percent, the first such decline in more than a years' time. More interesting is that the measure of "core" inflation, which excludes highly-volatile items like food and gasoline also fell for the first time in more than 7 years, easing by 0.1 percent. At 2.4 percent, overall annual price increase remain above the Fed's working limit of about 2 percent, but the core CPI declined in March to that exact level.

  Find these only at HSH.com!
   Mortgage data: Today's Rates Historical Mortgage Rates Mortgage Trend Graphs
   Calculators: Downpayment Decisioner Tri-Refinance Calculator PMI Cost Calculator
   Resources: Housing & Salary Study ARM Index Data Home Value Estimator

These declines in price pressures may be temporary, but if nothing else, give some reason to think that the Fed won't start an increasingly aggressive campaign of raising rates anytime soon. It remains that the June meeting will most likely see another increase in the federal funds rate, but if inflation stalls for a bit longer, perhaps another month or so, there is a chance that we might not see a rate change until later on.

Retail sales put in a second consecutive lackluster month in March. It would seem that solid employment markets and even somewhat rising wages aren't translating into much by way of consumer spending, or consumers are finding lower cost goods to buy or only buying discounted items. Whatever the case, retail sales in March were 0.3 percent lower than those in February, which in turn were 0.2 percent below retail outlays in January. Although lower sales of cars and trucks were behind the overall decline, leaving them out didn't improve the picture here much, leaving sales unchanged in each of the last two months. It may be that there is a little lagged effect in play here too, as income tax returns this year were delayed, so perhaps more spending will show in April tallies.

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Claims for initial unemployment benefits plummeted two weeks ago, retesting 43-odd year low levels. In the week ending April 8, claims rose by just 1,000 to 235,000 new applications, another remarkably low level. All that said, and even as these impressive figures suggest further tightening in the job market, seasonal adjustments due to the every-moving Easter holiday may be distorting the figures to a degree. Should these levels hang around for another week or so, this might suggest that a significant rebound in hiring from March's meager 98,000 will be revealed when the April employment report is released.

Despite plenty of troubles all about, consumers remain upbeat. That's the message from the preliminary April review of Consumer Sentiment from the University of Michigan poll. Their mood barometer edged 1.1 points higher so fat this month, climbing to 98 and recovering a fair portion of a two-month valley. Sunnier assessments of current conditions powered the headline figure higher, and that's probably to be expected with solid job markets, high equity valuations, relatively low gas prices and more. However, more tempered outlooks for the future remain in place; a decline in the expectations component of the index occurred in February has seen little improvement even with an interim 0.4-point rise to 86.9 in early April.

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Does mortgage history repeat? Usually. Find out what happened last week/month/year with MarketTrends archives!

Current Adjustable Rate Mortgage (ARM) Indexes
Index For The Week Ending Year Ago
  Apr 07 Mar 10 Apr 08
6-Mo. TCM 0.93% 0.87% 0.36%
1-Yr. TCM 1.04% 1.02% 0.55%
3-Yr. TCM 1.47% 1.64% 0.86%
5-Yr. TCM 1.88% 2.08% 1.18%
FHFA NMCR 4.22% 4.00% 3.97%
FHLB 11th District COF 0.591% 0.616% 0.664%
Freddie Mac 30-yr FRM 4.14% 4.21% 3.59%

At the moment, mortgage and other interest rates do seem to have plenty of items weighing them down and anchoring them at or near the bottoms of recent ranges. Unlike a few months ago when any economic or political news seemed to be treated as good news and served to bolster the rising-rate climate, we're in a different place at the moment. Of late, even good news doesn't seem to move stock markets or yields upward by much, while softer news is allowing rates just a bit of space to decline.

Next week, we'll get a look at housing markets in March from both home builders and Realtor perspectives, get a chance to review economic conditions in the form of the Fed's latest "beige book", get a look at industrial production and a few other items. The last couple of wobbles for rates have all been downward. U.S. markets were closed for the Good Friday holiday and so make reckoning a little more difficult, but indications are that we might wobble another couple of basis points lower on average when Freddie reports conforming rates next week.

For a interim forecast for mortgage rates and the economy, one which runs through early June, have a look at our Two-Month Forecast. For a year-long review of expectations, see our 2017 Outlook.


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 Calculator to learn exactly when you will no longer have a mortgage balance greater than the value of your home.

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