Mortgage Rate Trends: Weekly Market Commentary & Forecast
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Mortgage Rates Closing In On 2015 Lows
October 9, 2015 -- With all available indications of a cooling economy, and with a Fed concerned that already-low inflation could retreat from present modest levels, mortgage rates have found reasons to drift lower in the last few weeks.
Although they aren't wandering into any new territory (as least as of yet), they are trending toward their lower bound for 2015. To be fair, the gap between the highest rate this year and the lowest is pretty slim to start with (only about 38 basis points from top to bottom), and with our 40th week of the year just finished, that translates into fairly remarkable stability during a period where rates were expected to be considerably more volatile, if not in an outright upward trajectory.
For whatever the reason, mortgage rates have remained more favorable for longer than was anticipated and continue to allow homebuyers and homeowners opportunities to grab low cost financing with little fear of an unwanted spike in rates to derail homebuying or refinancing plans. There may have even been an inkling from the Fed that we might expect more of this in the future, too.
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 3.89 percent. The FRMI's 15-year companion managed a Four basis point decline, slipping to an average rate of 3.20 percent. Popular with first-time homebuyers, rates on fully-insured FHA-backed 30-year FRMs remain considerably below their conforming counterparts and also managed a four basis point fall, dropping the average back to 3.70 percent. Lastly, the overall 5/1 Hybrid ARM couldn't be bothered to move at all, and so held steady at an average rate of 2.92 percent. Overall, rates are back to about April and May levels and are now in the lower third of 2015 ranges.
See this week's Statistical Release and Mortgage Trends Graphs.
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Minutes from the September Fed meeting were released this week. We already know the outcome, as no change to the federal funds rate occurred. Whenever that change does come, the Fed had been making it clear that their program of reinvesting inbound proceeds from its massive balance sheet would come to and end, and we believe that this would have more effect on mortgage rates than any small change to the federal funds would.
It may just be that the Fed is waffling on this pledge, for contained in the minutes was a staff briefing on whether or not continuing this would have any appreciable effect on the Fed's ability to manage the funds rate. The briefing went on to say that if the economy performs as expected, there would be little difference in economic outcomes if reinvestments continued until the funds rate reached given targets of 1 or 2 percent, for example, and indicated that continuing the process even as short-term rates were increased could provide a buffer against unexpected softening in the economy. A discussion among staff and members ensued, and no decision on reinvestment policy was made, but there is a real possibility that the Fed could decouple monetary and reinvestment policies from one another. If they do, so long-term rates (and mortgage rates) would tend to be lower than a pure market-based response would bring, even as short-term rates were being lifted. This would be a new wrinkle in the Fed's ongoing manipulation of interest rates and bears watching as approach any change point for policy.
Given the muted economic data of late, that change point isn't likely to be come in October and may not even come in December, but it's too early to make that call. While manufacturing struggles, the larger service side of the economy is still doing well, if somewhat less so than during a more robust summer surge. The Institute for Supply Management's barometer which tracks activity among non-manufacturing businesses had a decided slowing in September, decelerating from August's reading of 59.0 to 56.9 for the period. Despite the drop, the indicator simply moved back back to closer levels seen earlier in the year and remained in solid territory. Although orders and current activity slowed, employment prospects moved higher, which is usually an expression of confidence about the economic climate.
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Consumers expressed some confidence in August, too. Consumer credit usage expanded by $16 billion dollars during the month, with a $12 billion rise in installment borrowing (usually loans for items like cars and education) but also a $4 billion increase in revolving balance. Revolving credit usage has expanded now for the last six months, a trend not seen for quite some time. During the recession and recovery and for a long string in the expansion, credit balances were declining on a regular basis. Expanding balances can be interpreted as an expression of confidence about one's future ability to make payments, so that's a good signal for the economy. August's overall borrowing was down by 2.9 billion from July and the smallest gain since February, but the changing mix may be reflective of more folks getting jobs and fewer headed back to school and a slower pace for car sales after a very strong summer.
It's little surprise that the nation's imbalance of trade widened in August. The $48.3 billion gap between goods and services coming into or leaving these shores is the result of a pretty solid economy here, but also one of a strong dollar and weak economies of trading partners. That situation is pretty easy to see when you consider that the value of imports rose by $2.8 billion during the month, even as the value of exported goods shrank by $3.7 billion. Until the economies of our trading partners begins to improve or their currencies begin to appreciate against ours, we're not likely to see any measurable improvement in the trade deficit.
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Whether coming or going, goods are getting cheaper. This is likely one of the areas the Fed expressed concerned about, since raising the funds rate would tend to strengthen the dollar and put more downward pressure on prices. Import prices declined by 0.1 percent in September, a smaller decline that was expected, but a third consecutive decline nonetheless, and as measured here prices are almost 11 percent lower this year than last. Also, while the monthly dip was somewhat more pronounced when oil and gas imports are removed from the mix, those did have a tempering effect over the last 12 months, leaving just a 3.1 percent year-over-year fall. Export prices dropped a more considerable 0.7 percent for the month and are tracking at a annual decline of 7.4 percent at the moment as exporters continue to see margins squeezed in order to remain competitive.
We're not quite headed into the holiday shopping season, but would might expect to see some stockpiling of goods along the supply chain in anticipation of it. Inventory levels at the nation's wholesaling firms (upstream from retailers) expanded by 0.1 percent in August, but orders for more goods declined by a full 1 percent during the period, perhaps reflective of some caution among retailers during a month when the stock markets had some very rough going. With the bump in holdings, the ratio of goods on hand relative to sales edged higher to 1.31 months, so it may be that somewhat fewer orders to manufacturers will happen as a result, perhaps reinforcing the pervasive slowness already in place.
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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.
That slowness continues to have a beneficial effect on mortgage rates. Even if we don't break new low ground, low and steady rates provide important opportunities and time for borrowers to get themselves better aligned with today's market standards for credit, asset strength, income histories and equity requirements. Despite a long spate of refinancing, it is estimated that there are still perhaps millions of potential homeowners who might benefit from a refinance of one sort or another, and the longer that low rates remain in place the greater likelihood that this might catch someone's eye.
Also, it stands to reason that there are many wanna-be homeowners and former homeowners for whom continued low rates means a chance to fix poor credit scores, amass more assets for a downpayment, add a few more months to a job history or even get a black mark of delinquency or foreclosure off their credit records. Low, steady rates provide the time to plan and prepare without fear that the opportunity is fleeting, and this is a very good thing overall.
Next week, we'll get a couple of looks at prices (probably down), some reviews of local manufacturing health (probably poor as well) and initial readings on consumer moods. We'll be interested to see the Fed's regional survey of economic conditions to how growth is faring in the 12 districts around the country. There not much reason to think rates are going to rise, but they probably aren't in a position to fall much, either. A couple of basis point decline is about all we expect to see by the time next Friday rolls around.
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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