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Mortgage Rate Trends: Weekly Market Commentary & Forecast

HSH Market Trends
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Gentle Mortgage Rate Slide Continues

October 2, 2015 -- More signals of a soft growth pattern emerged this week, perhaps making the Fed look prescient in its decision to hold off raising interest rates at its last meeting. That said, it's not as though they are prepared at the moment (or perhaps at all) to do anything to combat any economic slowdown, so markets are left to languish on their own.

With the recent muted pattern for growth its tempting to think that the Fed will hold off changing policy until 2016, but at the moment all indications are still that we'll see a December move. As always, though, the situation here remains fluid.

While bond markets behaved predictably in response to slower data -- that is to say, yields declined -- equity markets don't seem to know how to react. On the one hand, slower growth means lower short-term rates for longer, which has been good for stocks... but that situation is caused by poor economic prospects, which could hurt profits and share prices. On Friday, at least, the benefit of low rates got the upper hand, and with Treasury bond yields down, mortgage rates are drifting lower.

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 declined by another three basis points, easing to an average rate of 3.92 percent. The FRMI's 15-year companion managed just a two basis point decline, slippng to an average rate of 3.24 percent. Popular with first-time homebuyers, rates on fully-insured FHA-backed 30-year FRMs remain considerably below their conforming counterparts and managed a five basis point fall, dropping the average back to 3.74 percent. Lastly, the overall 5/1 Hybrid ARM saw a decline of four one one-hundredths of a percentage point, settling back to an average rate of 2.92 percent. Overall, rates are back to about April and May levels but still remain solidly in the middle of 2015 ranges.

See this week's Statistical Release and Mortgage Trends Graphs.

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A couple of months ago, we saw a brief uptick in an otherwise yearlong downward trend for manufacturing. Stung by a strong dollar and weak exports, it has been an increasing struggle for producers for a while now. The latest broad measure of factory orders was case-in-point, as August featured a 1.7 percent decline overall, with declines spread amidst both orders for both durable and non-durable goods. In fact, there have only been three positive months recorded here since last August, so reliable traction has been hard to come by.

The struggles for manufacturers is most easily seen in the Institute for Supply Management's latest report covering manufacturing. A small upward flare in May and June petered out over the last few months, leaving the indicator at a barely-breakeven 50.2 for September. Production activity continues to diminish, as do new inbound orders amid diminishing inventory levels. Unsurprisingly, thie weakness has trimmed employment prospects, too, and is contributing to the less robust hiring pattern of the last few months. Perhaps a harbinger of things to come was a report from a ISM group in New York City, whose local barometer went strongly into the red during the month and perhaps signaling an intensification of the downturn on the national level. We'll need to wait to see, but at the very least the news isn't encouraging.

Perhaps the only bright spot for factories is vehicle manufacturing, which is a narrow but important slice of the whole. According to AutoData, sales of new cars and trucks bounced up to an 18.2 million annualized rate in September, the highest such tally in 10 years. A recovering consumer and an aging national fleet of vehicles coupled with cheap fuel and readily available financing continues to power sales, but it seems likely that the softer growth pattern taking shape of late will trim this back somewhat as we go forward.

If HSH's weekly MarketTrends newsletter is the only way you know HSH, you need to come back and check out HSH.com from time to time. You'll find new and changing content on a regular basis, unique calculators, useful insight, articles and mortgage resources unlike anywhere else on the web.

The latest look at the job market came out on Friday, covering September, and frankly, it was a bit of a bummer. During the month, just 142,000 new hires took place, well short of expectations, and August's already-tepid figure was chopped by 37,000 jobs to just 136,000 for the month. These figures are more akin to those seen when the economy grew at a 0.6 percent rate to start the year than to the nearly 250K we saw during the fairly robust second quarter. Although the unemployment rate remained at 5.1 percent, there was a 350,000 reduction in the size of the labor force which helped it to remain there, and the labor force participation rate fell to 62.4 percent, a recovery low. There was no growth in wages last month, either, as average hourly earnings were unchanged from August.

Personal incomes were a touch higher in August, though, rising 0.3 percent. Although that was down from July and failed to reach forecast levels, there was a 0.5 percent lift in wages measured here, so that was a bit of good news. Personal spending during the month rose 0.4 percent, and with more outgo than income during the period, the nation's rate of savings eased to 4.6 percent, pretty close to the trend of the last few months. These savings have been important for consumer spending during this expansion, but an increased willingness by consumers to take on new revolving debt makes it somewhat less necessary now than before.

  Find these only at HSH.com!
   Mortgage data: Today's Surveyed Rates Historical Mortgage Rates Mortgage Trend Graphs
   Calculators: Downpayment Decisioner Tri-Refinance Calculator PMI Cost Calculator
   Resources: Housing & Salary Study Mortgage Rate Surveys Website Tools and Widgets

That we build things is important for the economy, no matter how it is expressed, and spending for construction projects continues to be an important support as manufacturing struggles. Construction outlays rose by 0.7 percent in August, continuing a positive string now in place since last November. The August figure was driven higher by a 1.3 percent rise in residential projects, a 0.2 percent lift in commercial and industrial building and even a 0.5 percent gain in public outlays. With a little luck, the funds here will keep flowing until conditions support opportunities for more traditional manufacturing gains.

At least one economic bright spot is that employers are keeping the employees they've got. Aside from some 58,877 announced job cuts tallied by the outplacement firm of Challenger, Gray and Christmas, a sizable September uptick from August and largely the result of job cuts at Hewlett-Packard, the trend for layoffs has been favorable. It continued to be (if somewhat less so) in the week ending September 26, when 277,000 new applications for unemployment assistance were filed across the country. It may be that involuntary separations are low because it is difficult to hire qualified people, what with a recession-level employment force participation rate, but that would suggest we'd be seeing some stronger and more regular wage gains, but these remains largely absent from the equation so far.

As measured by the Conference Board, consumer confidence edged higher in September. The 1.7 point lift in the barometer of moods wasn't much, but was sufficient to lift it to its highest point since January. Consumers are also feeling better about their prospects, since plans for buying homes and autos moth moved upward during the month. This report does seem at odds with the UMichigan Sentiment index, which has been on a downward bent for months, but perhaps this is a signal that that indicator might change direction when it is first released in a couple of weeks.

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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.
Current Adjustable Rate Mortgage (ARM) Indexes
Index For The Week Ending Year Ago
  Sep 25 Aug 28 Sep 26
6-Mo. TCM 0.09% 0.21% 0.03%
1-Yr. TCM 0.34% 0.36% 0.10%
3-Yr. TCM 0.99% 0.98% 1.06%
5-Yr. TCM 1.47% 1.47% 1.79%
FHFA NMCR 3.99% 4.02% 4.09%
SAIF 11th District COF 0.639% 0.643% 0.676%
HSH Nat'l Avg. Offer Rate 3.95% 3.94% 4.27%

As far as mortgage rates go, now that the Fed is on the sidelines for what is likely to be a couple more months, we're largely back to a "data-driven" environment. Weaker data, such as the kind we saw come along this week, and mortgage rates will tend to ease; stronger, and they will stabilize or firm slightly (it would take an accumulation of solid news at this point to see them approach 2015 highs, and even those are only perhaps a quarter percentage point above where are are at the moment -- not far away at all).

A couple of items of note next week, including the ISM services index and the minutes of the last Fed meeting. If the evaluation of the larger service side of the economy suggest a weaker pattern, mortgage rates will continue their downward trend. As well, the FOMC minutes to be released on Thursday should also give us a sense of how close (or far) the Fed is to making a policy change, even with a 9-1 vote to hold fast last month. From where we are this week, odds favor a decline of a handful more basis points by the time we end the week... probably a 5-8 point decline 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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