Mortgage Rate Trends: Weekly Market Trends & Forecast
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Rate Movements Await Economic Clues
February 28, 2014 -- As it turns out, it would appear as though the most important item of early 2014 may not be the Fed's decision to begin to taper QE purchases. They did begin that process and all indications are that they are committed to continuing to regular reductions in support, as Fed Chair Janet Yellen again made clear in discussions before Congress this week.
The most influential item may or may not turn out to be the weather, or at least there is a lot of hope that when the snow and cold finally abate that the economy will flare higher again. Given the regular happenstance of weaker economic data over the last two months, we certainly hope that this turn out to be the case, but can't help the feeling that there simply isn't that much underlying pop in the economy, even when considering the effects of diminished Fed stimulus and weather issues.
With a strong spate of homebuying accompanied by bouts of high refinance activity, the housing and mortgage markets were busy places until about mid-2013, when a Fed-led spike in rates turned into something more durable, crushing refinance activity and crimping affordability. The market got increasingly quiet as the year ended, and the economy's performance has since cooled, too. The question is, are we just now seeing the full effect of the rise in mortgage rates from last year?
HSH.com's broad-market mortgage tracker -- our weekly Fixed-Rate Mortgage Indicator (FRMI) -- found the overall average rate for 30-year fixed-rate mortgages slipped by two basis points (0.02%) to land at 4.42%. The FRMI's 15-year companion eased by a single basis point (0.01%) to dip to 3.54%. Popular FHA-backed 30-year FRMs declined by two basis points to land at 4.04% for the period, while the overall 5/1 Hybrid ARM found no reason at all to move, holding steadfast at an average rate of 3.06%, remaining at its lowest rate since late November.
See this week's Statistical Release and Mortgage Trends Graphs.
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In "normal" times, changes to Fed interest rate policy (such as a move in the Federal Funds rate) can take as long as six months to be fully realized throughout the economy. The abrupt rise in mortgage and other interest rates -- occurring not from a change in policy, but rather a change in expectations for policy -- began last May, with an interim peak in August. If the effects of that jump have taken six months to wend their way, roughly from June to December, it could very well be that we are only now seeing the full effect on the economy, or at least in certain aspects of it.
Mortgage rates aren't high by any stretch of the imagination, but tight underwriting conditions, higher interest rates and higher home prices all have a cumulative damping effect on activity. Add in that job growth has shifted from OK to almost nil over the last couple of months, that income growth is puny and that inventories of desirable homes are tight, and you've got plenty of reasons why traction in housing remains hard to come by, even if the weather cooperates.
The slowness here has wide-ranging economic effects. The headlines have been full of mortgage-related job cuts over the last few months and that drumbeat continues. There are countless others in ancillary industries ranging from Realtors to movers and everything in between who are affected, and fewer jobs or smaller commissions means less to spend to support the economy. There are thousands of ways the housing, real estate and finance industries are entwined in the economy, and none are firing as strongly as they could.
A couple of signals from the housing market out this week seemed strongly at odds with one another. On the one hand, sales of new homes in January posted an unexpected rise to 468,000 (annualized) units sold. The increase (and upward revision to December sales) were a surprise, given that many housing signals have been flashing yellow, at best. For example, we learned just last week that housing starts in January declined and that builder moods cratered in February.
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The bump in new home sales provided a striking contrast when compared against the latest report covering mortgage applications from the Mortgage Bankers Association. Purchase-money applications used to buy homes touched a 19-year low in the week ending February 21 and have declined in six of the eight weeks of 2014, and there was only one week in January which exhibited any sort of bounce. As such, it seems hard to reconcile that news that buyer applications for financing are mostly declining while certain home sales are rising. Are builder finance companies getting all the financing business here? Are these buyers of brand new homes paying cash? Whatever the case, the new home sales report seems an outlier from the trend. Supplies of new homes remain tight, too, holding at 184,000 units ready to go. Despite a generally more active market, inventory simply isn't being added at any regular pace; the last five months have seen unsold stockpiles of 181K, 183K, 183K, 184K, 184K, well below normal and only about 40,000 units above all-time lows.
Economic slowness was evident in the downward revision to fourth quarter 2014 Gross Domestic Product. After a strong third quarter running above 4 percent, the initial estimate of 3.2 percent growth last month gave way this week to a 25 percent reduction in that modest number. GDP is now reckoned at a lackluster 2.4 percent for the period, and there seems to have been no momentum to spill over into 2014 as a result, which by all indications has started slowly.
As we wait for the February employment report (due out next Friday) it's hard not to notice the slump in job growth over the last two months or be concerned about its impact. With another 348,000 new applications for unemployment benefits filed at state offices in the week ending February 22, the recent pattern makes it hard to gin up any optimism that the February employment report will be much better than the last two. Job growth was steady for much of 2013, lending confidence about the durability of the recovery, but January's number wasn't even half of November's, and if we hope to see growth pick up, we will need to see a much faster rate of hiring before long.
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Reflecting the recent economic slump, the Chicago Federal Reserve's National Activity Index for January slumped to minus 0.39, its lowest reading since last July. December was revised from a slight positive to a slight negative, and the indication here is that the economy is growing rather below its potential again. If this persists, we may struggle to see a GDP much better than the present 2.4 percent rate in the first quarter of 2014, but there is much February data yet to be seen, while most of March's data won't come for weeks yet, so it will be late April before we even get our first peek.
Orders for durable goods hit the skids in December and failed to bounce back in January, where another decline of 1 percent occurred. Most of the fall was due to a drop in orders for expensive transportation equipment, which tends to be erratic, and the report was more encouraging without them included. That said, orders have now backed off in three of the last four months and the slowing isn't especially welcome, concentrated in selected industries or not.
There was a mixed bag of outlooks from two Federal Reserve Bank Districts. Manufacturing activity in the Richmond District fell hard in February, sliding 18 points to land at minus 6 for month, as three very strong months gave way. The report noted that new orders and prospects for employment gains both dipped in the area. Over in the Kansas City region, a better time was noted, as their localized indicator shed a single point, easing from 5 in January to 4 in February. Orders were steady but employment, although still positive, slid backward.
HSH's Statistical Release features charts and graphs for eleven mortgage products, including Hybrid ARMs.
Our state-by-state statistics are now here.
Consumer outlooks remain tenuous at best. The final February reading on Consumer Sentiment from the University of Michigan was nearly unchanged from January, rising 0.4 points to 81.6 for the month, and is mostly moving sideways over the last couple of months. The Conference Board's measure of Consumer Confidence slid back slightly, easing by 0.7 points to a February value of 78.1, also moving in the mostly the same horizontal pattern over since late 2013. Only the weekly Bloomberg report covering Consumer Comfort showed any real life, rising by a full two points to minus 28.6 in the week ending February 23, its highest value since the first week of 2014.
Mimicking much of the economy and certainly consumer moods, mortgage rates are moving mostly sideways. There's just enough hope and optimism that this soft patch will break up to keep rates from falling, and just enough concern that we could be in for a longer rough patch to keep them from rising much. The economy may or may not need or actually be benefiting much at this point from the Federal Reserve's QE programs, but for some it is comforting to know that the sheriff is on the job, if nothing else. Regardless, the struggle to gain forward traction continues; the Fed is pushing less strongly than it was, even if it has only limited effect, while the unassisted economy continues to stumble along.
The usual first-week-of-the-month cascade of data comes again next week. We'll get auto sales, the twin ISM data series, the Fed's regional survey of economic data ("Beige Book"), income and spending updates, productivity readings and the employment report. There's been little available over the last few weeks to suggest upside surprises or blockbuster numbers in the offing; most likely, we'll see more of the same, perhaps with a few warmer-than-the-last report entries in the group. Mortgage rates are going nowhere fast, so expect more sideways wandering next week of a few basis points in either direction.
For a longer-range outlook for rates and the economy, one which will take you up until mid April, have 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 rates are available on HSH.com. Check out our weekly Statistical Release here (and archives here).