Mortgage Rate Trends: Weekly Market Trends & Forecast
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Rate Rollercoaster Heads Downhill
April 11, 2014 -- Although by all rights mortgage rates should be rising by now, an unsteady economy has been joined by a suddenly wobbly stock market, serving as reason enough to put long-term interest rates and mortgage rates back on a downward course for at least the moment.
In reality, though, we seem only destined to revisit the bottom of a months-long range for mortgage rates. Each time there appears to be sufficient reason for rates to kick higher, something else comes along to press them back down.
That's not a complaint; however, as favorable as interest rates are, they aren't low enough to foster any kind of demand for refinances, not low enough to help overcome the decline in affordability that a couple of years of double digit home price inflation have created, and with no regular upward direction, are not creating any sense of urgency among potential homebuyers to act quickly, even if there was something desirable to buy. Most forecasts (including ours) have been generally suggesting that higher rates are coming... but yet, here we are, again.
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 dipped by six basis points (0.06%) to drop back to 4.43%, a three-week low. The FRMI's 15-year companion also eased by six basis points, falling to 3.57% for the week. Popular FHA-backed 30-year FRMs followed suit, also shedding six basis points to return to 4.10% for the period, as these fully-insured loans continue to have the lowest prices in the market by a fair margin. Finally, the overall 5/1 Hybrid ARM also declined by six one-hundredths of a percentage point (0.06%), ending the week at an average 3.10 percent.
See this week's Statistical Release and Mortgage Trends Graphs.
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The list of items which argue for higher rates isn't all that long, but there are a few influential items in there, not the least of which is a Fed on a regular path of becoming less accommodative. To that, we could add the job market, improving after a rough patch, quickly rising values of certain financial assets and regular (if uneven) economic growth for an extended period now, and one which doesn't appear to require "emergency level" support to continue ahead.
Counterbalancing that is very low inflation (and possible deflationary pressures forming), an economy which is clearly not firing on all cylinders at the same time, a low rate of employment participation for any number of reasons, weak demand for credit, sluggish consumer spending and more. We also might add that the economies of many of our trading partners are barely growing either, and there is more evidence that growth in China is slowing as well.
There was a time when a headline of "initial jobless claims fall to seven-year low" would have caused an immediate sell-off in bonds and produced higher interest rates. Perhaps that time will come again, but exactly when is a good question; perhaps when we eventually again approach "full employment". Regardless, the latest report covering initial unemployment claims for the first week of April has the month off on the right foot, with a 32,000 decline to a flat 300,000. Although technically it was only the lowest figure since early September 2013, those data were distorted downward due to reporting issues in a few states. Each leg down in new unemployment claims points to an improving job market, and the March employment report noted that we've finally recovered all the private-sector jobs lost in the recession (leaving out population growth over that time).
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Consumer borrowing continued a familiar pattern in February. The $16.5 billion rise in credit outstandings was an increase from January of nearly $3 billion and was higher than expected. As has been the case now for several years, non-revolving credit continues to spur growth, as purchases of big-ticket items - cars and education - have provided regular gain. Revolving credit remains weak, and more often than not, people are paying down their credit card debt, with February posting another a $2.4 billion decline. The uncertain economy continues to keep consumers wary of taking on additional credit card debt.
The minutes from the March Federal Reserve meeting were released this week, and there was no surprise contained in them. All that came with Ms. Yellen's "about six months" comment in the press conference which followed the meeting, which causes an appreciable but now-forgotten pop in interest rates, The Fed did provide some clarity about why they decided to no longer use the unemployment rate as a benchmark, though.
"Participants agreed that the existing forward guidance, with its reference to a 6-1/2 percent threshold for the unemployment rate, was becoming outdated as the unemployment rate continued its expected gradual decline. Most participants felt that the quantitative thresholds had been very useful in communicating policy intentions when employment was far from mandate-consistent levels, but, with the economy having moved appreciably closer to maximum employment, the forward guidance should emphasize that the Committee is focusing more on a broader set of economic indicators."
Simply put, the indicator no longer effectively served its purpose of signaling the market as to the Fed's intentions. Instead, they would take a more holistic approach to discern the health and direction of the labor market. We presume that weekly initial claims data will be among them.
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Of course, the Fed remains concerned at all times with inflation or lack thereof. Price pressures for goods coming onto these shores have bumped higher over the last four months, as import prices posted a 0.6 percent rise for the month, fast on the heels of a 0.9 percent rise in February. That said, there's little concern to be seen, since import prices are now only falling at a slower annual rate (-0.6 percent) than they had been, and a little inbound price pressure might help to ward off deflation concerns. Prices of goods headed overseas have been on the rise for a longer period, as we are exporting a little inflation of our own. The value of goods sent off U.S. shores was up 0.8 percent in March, the largest monthly boost since 2012, and prices measure here are actually up 0.2 percent over year-ago levels.
Some of those import and other price increases may be filtering downstream, too. The Producer Price Index moved from a reading of -0.1 percent in February to a rise of 0.5 in March. The "headline" rise of 0.5 percent was largely the result of more costly service inputs, as the cost of inbound goods was flat. The measure of "core" goods inflation was slightly lower than February as issues in both Europe and China are serving to temper price increases here.
Inventories at the nation's wholesalers expanded by 0.5 percent in February, continuing a string of mild increases, and sales rebounded after a rough January, rising by 0.7 percent after a 1.8 percent decline. That sales are picking up suggests that retailers are expecting consumer to turn out to a greater degree this spring after many were trapped at home during wicked winter weather. Despite the gain in sales, though, overall inventory levels of 1.9 months of goods on hand remains somewhat more elevated than in many months last year, so cautious new ordering will likely continue to be the pattern as we move forward.
HSH's Statistical Release features charts and graphs for eleven mortgage products, including Hybrid ARMs.
Our state-by-state statistics are now here.
Breaking out of the winter doldrums was the Consumer Sentiment as measured by the University of Michigan. The preliminary April reading of sentiment bounded 2.4 points higher to 82.6, the highest reading seen here since last July. Although there isn't a direct lockstep correlation, it is believed that happier consumer will open their wallet and spend, in turn powering the economy forward. However, it may just be that recent record figures for the stock markets (and possibly early tax returns) have boosted moods, but we won't be able to assess the durability of the increase until more time passes.
As far as mortgage rates go, well we had our little incline, rising to close to 2014 highs, but have apparently crested the hill and we're headed back down into a dip. We actually have a shot at setting 2014 lows next week if investors continue to shun stocks at the rate they have lately, and especially if there's nothing in the economic news of concern.
A fuller calendar of fresh data comes next week, including Housing Starts, Building Permits, builder sentiment, retail sales, the Fed's Beige Book and more. If we are moving from the winter doldrums, the March data coming out should show the first signals of that, and may trim the downside for rates a little bit. Still, we'll at least start the week on a downward rise, but may end up back at the same platform at which we ended this week.
We'll also be working on a new two-month forecast, reviewing this period and looking toward the summer. Surely we'll have higher rates by then... or maybe not.
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).