Mortgage Rate Trends: Weekly Market Trends & Forecast
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Wobbly World, So Fixed Mortgage Rates Decline To New 2014 Lows
October 10, 2014 -- Rattled about the prospects for economic growth around the world, investors shuffled some cash around this week, with a fair bit of it coming out of stocks and rolling into bonds, particularly U.S. bonds. Having featured several notable routs over the years, including the infamous "Black Monday" in 1987, October is rarely noted for its kindness to equity investors, but at least in this case, some benefit will accrue to mortgage seekers.
Of course, there's a price for that cheap money. To the extent that we depend upon exports to help keep our own expansion going, slower growth overseas will diminish this somewhat. While the U.S. is in far better economic shape than is most of the developed world, we have still not reached full recovery in many ways, and slower growth would tend to retard that process of improvement to some degree.
For the moment, though, rates slipping into new 2014 lows may spark a bit more refinancing, and should they persist for a while, even a little bit of support for home sales. To be honest, they are little different than those we saw all summer long.
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 slipped backward by eight basis points (.08%) drifting back to an average rate of 4.15 percent. The FRMI's 15-year companion shed seven basis points to ease to an average rate of 3.42 percent. Fully-insured FHA-backed 30-year FRMs also managed a seven basis point trim off last week's average, as these lowest-priced fixed rate mortgages eased down to 3.85 percent for the week. Finally, the overall 5/1 Hybrid ARM moved for the first time in three weeks, easing by five basis points to drop to an average 3.16 percent for the week.
See this week's Statistical Release and Mortgage Trends Graphs.
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We should note that conforming 30-year fixed rates also slipped to a new 2014 low of 4.14 percent, three basis points below previous 2014 lows. Expect other observers to report "New 2014 lows for rates!" next week.
There may also be something to be said about the quickly-coming end to QE and its effects on the economy in general and mortgage rates in particular. Although the Fed's support has been waning throughout 2014, it may well be that there is some discounting of future economic activity as a result of this diminishing support -- buying of Treasuries and MBS -- and if growth prospects are marked down, mortgage rates too would be marked down.
Originally there were concerns (most especially last year, when the Fed announced the QE "taper") that markets would be overwhelmed with supply of both Treasuries and MBS and that there would be insufficient demand to mop up supply (hence the increase in interest rates back then) but this has not turned out to be the case at all. With the refinancing boom over, MBS supply has diminished, and with the economy recovering, Treasury issuance has declined too -- and at a time when demand from global investors for at least Treasuries has increased.
Inflation, of course, also has an influence on the direction for interest rates. Domestic inflation has been only simmering of late, and slower growth overseas and a strengthening dollar will tend to further trim price pressures. Prices of goods coming onto these shores declined by 0.5 percent in September, a third consecutive decline, and import prices are declining at a 0.9 percent annual clip at the moment. With the stronger dollar making our goods relatively more expensive, our ability to raise prices is diminished, too, and aggregate costs of goods destined for our trading partners slipped by 0.2 percent during the month, a second consecutive decline, with prices now down by a like amount on an annualized basis.
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The Federal Reserve expressed concerns about these issues in the minutes of the September 16-17 meeting, noting that "the persistent shortfall of economic growth and inflation in the euro area could lead to a further appreciation of the dollar and have adverse affects on the U.S. external sector." It was also noted that "slower growth in China or Japan or unanticipated events in the Middle East or Ukraine might pose a similar risk" even as "the appreciation of the dollar might tend to slow the gradual increase in inflation toward the FOMC's 2 percent goal."
Of course, it should be noted that falling prices can have benefits, too; falling costs for oil and gasoline will free up billions of spendable dollars to power the U.S. economy. A ten-cent per gallon decline in gas prices produces savings on the order of $36 million dollars per day, about $1.1 billion per month. Given recent trends, some of this would probably be used for debt reduction, but given consumer reluctance to borrow on credit cards during the recovery, a fair bit will likely turn into fresh spending. After all, the holidays are just around the corner, or so retailers would have you believe.
Consumers certainly did add to debt loads at a much slower pace in August. Overall, borrowing expanded by only $13.1 billion, down from a $21.6 billion pace in July and the smallest monthly increase since last November. After five months of adding modestly to revolving accounts, a 0.2 percent decline in activity was seen (folks paying down balances). As has been the case, non-revolving debt (mostly car and student loans) powered the increase, rising by $13.7 billion during the month, but even this expansion of debt was the smallest gain since January. If borrowing isn't stepping up to push the economy forward, it'll have to be cash, and falling energy costs will certainly help in that regard.
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One thing consumers continue to buy are new cars and trucks, mostly available with financing to anyone who wants it. Although failing to reach August's recovery-high 17.5 million annualized rate, the 16.4 million pace of September sales is more than solid and beginning to look like this will be the actual, final number for 2014 when all is said and done. An aging auto fleet continues to need to be replaced, so prospects for future sales are pretty good, too, especially if employment gains continue apace.
The broadest measure of factory orders slumped by 10.1 percent in August, but that was mostly expected. We already knew that orders for durable goods returned to earth after an eye-popping July, but non-durable orders also were softer too, posting a second straight decline with a smaller 0.4 decline for the month. Despite the headline decline, business-related orders did manage a slight gain, so the report wasn't all doom and gloom.
That said, there was a little more gloom seen in the report covering Consumer Confidence as a couple of months of improvement in consumer moods was chopped off in September. The Conference Board's measure of attitudes dropped by 7.4 points, slumping to 86.0 for the month, a level last seen in June. Assessments of present conditions backed down by 4.5 points, but hopes for the future dropped by 9.4 and some of the sub-components of the report were a little more dreary, too. Even with the fall in September, the present value still ranks among the best of 2014 and remain above last year, too.
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HSH's Statistical Release features charts and graphs for eleven mortgage products, including Hybrid ARMs.
Our state-by-state statistics are now here.
Claims for new unemployment benefits remained at levels suggesting a firm labor market in the week ending October 4. Some 287,000 new applications for assistance were filed, about 8,000 lower than the week prior and a fourth week in a row holding below the 300,000 mark. With hiring up and layoffs down, forecasts for consumer spending for the coming holiday season are being ratcheted higher, at least by the National Retail Foundation, which is calling for a 4.1% percent gain over last year.
That said, stronger final demand may not produce stronger factory activity, at least right away. Inventory levels at the nation's wholesaling firms jumped by 0.7 percent in August, the largest gain since April, and sales to retailers declined by a like amount, the first decline since January. With inventories up and sales down, the ratio of goods on hand relative to demand increased, so wholesalers may be more cautious in placing orders in the month or months ahead, and that in turn may temper economic growth a bit.
Given the decline this week, next week's headlines will be likely be full of "lowest mortgage rates of 2014" and similar copy. It will be true, of course, but for most borrowers there's precious little difference between what we saw all summer long and "new lows", which will be measured in a difference of a few basis points and a handful of dollars: For example, on a $200,000 30-year FRM, the difference in monthly payment from the 4.21 percent average from mid-may through last week compared to this week's 4.14 percent is a little over eight bucks a month. It's not nothing, as the saying goes, but it ain't much, either.
The decline likely means that we could see a few more refinance stragglers jump in or even the trigger pulled on a few more purchase applications, but we would need significant declines from here taking us below (perhaps well below) the 4 percent mark to start to generate some real housing heat. While that's not out of the question, given the global mess in which we live, but it's not something you would want to put much stock in.
Since underlying interest rates slumped this week and flatlined there, at least a few additional basis point fall in rates should be expected next week. For our part, we'll be observing the fall, even as we consider our next Two-Month Forecast.
For a longer-range outlook for rates and the economy, one which will take you up until mid October, take a look at our new Two-Month Forecast.
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 greater than the value of your home.
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Daily FRMI ratesare available at HSH.com Check out our weekly Statistical Release here (and archives here).