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Mortgage Rate Trends: Weekly Market Commentary & Forecast

HSH Market Trends
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Mortgage Rates Back to Summer's Start

September 16, 2016 -- Spooked in recent days by the uncertain posture of the Federal Reserve, financial markets have hedged their bets a bit and pushed interest rates higher in recent days. The market trauma of the "Brexit" vote has faded, and this was one of the reasons (perhaps the primary one) that saw the Fed hold policy steady back in June.

Since then, the economy seems to have expanded at a somewhat faster pace, or at least that was much the case in July, anyway. Data from August has been decidedly cooler, providing some offset to increasing rhetoric from the Fed that the time may be approaching for another lift in the Federal Funds rate.

As it does in the days leading up to a policy-setting meeting, the Fed has now gone silent, but available indications suggest that whether it turns out to be for an increase or not, the vote will be a close one. In this context, like other interest rates, mortgage rates have edged up in recent days.

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 rose by five basis points (0.05 percent) to climb to 3.61 percent, the highest average rate since the week ending June 24. The FRMI's 15-year companion moved three basis points higher, working up to an average of a flat 3 percent. Popular with first-time homebuyers, rates on fully-insured FHA-backed 30-year FRMs remain a little below their Fannie and Freddie counterparts but also headed higher by four basis points, landing at 3.44 percent. The overall 5/1 Hybrid ARM followed other rates upward as well, adding three basis points to last week's average to end at 2.94 percent for the week.

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

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As has been the case, there's not much to see in the data that suggests that the Fed has an imminent need to move. That said, if they believe the economy has sufficient momentum to continue on its present pace or close to it, they may prefer to make a move now, as the next meeting occurs at just before the Presidential election; Historically, the central bank tries not to make changes that might have direct political implications if it doesn't have to do so. This means the next chance to raise rates will be some three months from now, in December; while the risks of the economy or inflation going on a tear between now and then is slight, it does raise the prospect that the Fed may feel the need to lift rates by a larger amount at that time to play "catch up", as it were.

At the Fed's meeting next week, we'll also get updates on Fed member's projections for growth, inflation and the path of interest rate policy over time. Whether there is a move next week or not, this should provide fresh clues as to how the Fed collectively views the economy and set market expectations for where interest rates will likely be as we wander into 2017 and beyond.

But will they move or won't they? We'll know one way or the other in just a few days' time.

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The available data out this week mostly all fell to the softer side of expectations or was otherwise a deceleration from previous updates. Retail Sales declined by 0.3 percent in August, slumping there after a July back-to-school spending uptick of 0.1 percent overall. The decline was enhanced by lower sales at car dealers and gas stations, and declined by just 0.1 percent excluding those volatile components. The overall trend for spending has cooled a but, too, as the annual pace has eased to just 3.4 percent, the lowest figure of the year to date.

Industrial production had been bolstered in recent months by large gains in utility output, with those driven by very hot summer weather spells. The nation's factories, mines and utilities say their output fall by a collective 0.4 percent in August; manufacturing declined by 0.4 percent after two promising months, utilities dipped by 1.4 percent after those strong ones mentioned above. Mining output (oil, gas, coal, etc) actually managed a 1 percent gain, and a fourth consecutive month of rising output after a truly difficult period. Energy prices stabilizing and some pickup in the economy here and abroad have improved prospects a bit for those raw input components, which is good news in its own right. Capacity utilization did slip back to 75.5 percent during the month, though, so there's plenty of available slack to be used up before we start to talk about inflation-forming bottlenecks anywhere.

Inflation isn't much to be seen anywhere, either. Certain core price measures have moved higher over the last year but have leveled, and incoming news posits the question as to whether or not there are reasons for concern about price pressures. After five months of increases, import prices stepped back in August, easing by 0.2 percent. This fall will probably trim the traction of pricing gradually rising over the past year; now at a decline of 2.2 percent, import prices are now falling at one third the speed they were as recently as February, but they are still declining. Export costs are falling at a somewhat faster clip; the 0.8 percent decline in August also killed a four-month rising trend, and prices of goods for export are sliding at a 2.4 percent rate over the last year.

  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 Home Value Estimator

The Producer Price Index failed to move in August, holding steady overall. The so-called "core" PPI rose a scant 0.1 percent, food enough for the first rise since May. Over the last 12-month period, there has now be no change in overall producer prices, while core PPI at the moment is just 0.6 percent above year-ago levels, and there's not much of a trend to be seen in either measure, and there are few inflation gauges that are showing anything more than a modest trend for prices at best.

Last week's drop below breakeven of the Institute for Supply Management's manufacturing gauge for August provided a little warning about the state of manufacturing at the moment, which seems uneven at best. This makes the push me-pull you report in two regional reviews of factory activity somewhat less surprising. The Empire State Manufacturing index from the Federal Reserve Bank of New York remained in negative territory in September, if less so. The negative 2 reading for this local activity indicator was up from -4.2 in August, and so a bit better overall, but new orders slumped, as did employment metrics. Down the New Jersey Turnpike to the Philadelphia Federal Reserve's region there was better news, as this local measure rose by 10.8 points to 12.8 for the month, the highest figure since March. New orders moved higher, and while employment gains were still negative, they were considerably less so, rising 14.7 points for the month.

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Does mortgage history repeat? Usually. Find out what happened last week/month/year with MarketTrends archives!

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 02 Aug 05 Sep 04
6-Mo. TCM 0.47% 0.42% 0.25%
1-Yr. TCM 0.61% 0.52% 0.37%
3-Yr. TCM 0.92% 0.79% 1.03%
5-Yr. TCM 1.19% 1.07% 1.50%
FHFA NMCR 3.62% 3.69% 3.85%
SAIF 11th District COF 0.693% 0.690% 0.659%
HSH Nat'l Avg. Offer Rate 3.58% 3.55% 3.99%

Claims for new unemployment benefits totaled 260,000 new applications in the week ending September 10. This continues a vary narrow range for initial claims which has been in place for the last few months, with the 260K about square in the middle of the highs and lows seen since the summer began.

Next week comes not only the Fed meeting and projections, but the official end of summer. Markets have become rather (or at least relatively) volatile since Labor Day unofficially brought the lazy, hazy, crazy days to a close; tranquil markets have again become restive, bond yields have risen, and equity prices have gyrated appreciably. It bears noting that this has been the case at times this year as we have approached each Fed meeting, more so when the quarterly updates to economic and policy projections from the Fed are due.

If the pattern holds, we would expect to see a still-edgy market next week, at least until the Fed meeting closes, the after-meeting press conference with Fed Chair Yellen has concluded and the summary of economic projections digested. After that, and should the previous pattern repeat, we will likely be in for another tranquil period, but one most likely where rates are level at a somewhat higher plane than those we saw throughout the summer. As such, we think that there might be a 2-3 basis point increase in mortgage rates in the next week, but it may be that the move is more slight than that.

We recently did a mid-year update to our 2016 outlook. This half-year review saw us update and discuss how our predictions are working out... some good, some not so good. Have a look!


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 Calculator 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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