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Mortgage Rate Trends: Weekly Market Commentary & Forecast

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Mortgage Rates Poised To Rise Again

January 20, 2017 -- The few week dip in mortgage rates came to an end this week, contrary to the latest data from Freddie Mac, which reported a slight decline in rates on Thursday morning. Influential underlying indicators of the direction of the cost of mortgage credit began rising pretty sharply after much of the GSE's survey was conduced for the week, and so won't be reflected in that series until next week.

For a change, the move seems to have everything to do with actual economic fundamentals or growth and inflation, rather than hoped-for political actions (or inactions) that may influence the economy in the future.

Aside from a number of other economic indicators, a couple stood out to us, and arguably to the markets, too. The Federal Reserve conducts a meeting in just about 10 days' time, and there remains about a zero chance of a change in policy at that time. However, Federal Reserve Chair Janet Yellen had two public speeches this week regarding the economic outlook and monetary policy, and nothing she had to say gave any indication that the Fed will waver from making perhaps three moves to short-term interest rates this year, so the potential for more change before long was perhaps enough to wake the bond market from the soft wane of the last few weeks.

The Fed's mandates concern labor markets ("full employment") and maintaining steady prices ("inflation"). Ms. Yellen noted that "The unemployment rate is now close to estimates of its longer-run normal level" and went on to note that "labor underutilization... has retraced nearly all of the steep run-up that occurred as a result of the recession." As far as inflation is concerned, "we are now much closer to the FOMC's 2 percent objective than we were just a year ago", she noted. If employment is closing in on "full" and inflation on "target", then there is not much reason for the Fed to hold off on changing policy before long. Although odd remain low, it's too soon to write off a move at the March meeting.

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In fact, the first indicator that stood out to us this week was the Consumer Price Index. Yes, the Fed prefers a "core personal consumption expenditures" measure but this is a fair enough proxy for at least the direction of prices. The 0.3 percent rise in headline CPI for December was a bit of an uptick from November, and was pressed there by energy prices as food costs remained unchanged for a sixth consecutive month. However, that 0.3 lift was sufficient to see headline CPI climb to an annual rate of 2.1 percent, its first crest above 2 percent in about 2.5 years, and so a milestone of sorts. Core CPI (a measure that disregards food and energy costs) clambered 0.2 percent higher for the month and returning to a 2.2 percent annual clip. If inflation is firm and even starting to find more traction, the Fed will feel compelled to move sooner.

The Fed's own regional survey of economic conditions (aka the "Beige Book") also contained language that might suggest a greater chances of a near-term move by the Fed. Overall, while the economy continued to grow at a "modest" pace, a majority of the Fed's 12 districts reported that labor markets are "tight or tightening"; in turn, the report noted that wage pressures "increased" while "price pressures intensified somewhat." Read collectively, growth and tight labor markets are starting to create inflation, and inflation concerns both the markets and the Fed.

Collectively (and among other items), the Fed Chair's speeches, labor market and inflation updates were more than sufficient to see a strong selloff in Treasuries, enough to push yields up by more than an eighth of a percentage point. As a result, and Freddie's data notwithstanding, we're in for a fair bump in rates.

What's happeing with home prices? Which markets have recovered... and which still lag behind? Check out the latest update to HSH's Home Price Recovery Index, covering price changes in 100 metropolitan areas -- and see our Home Value Estimator tool to reckon changes in your market during your ownership period!

In a bit of a blow to wanna-be homebuyers and possible FHA streamline refinancers, the incoming Trump administration suspended last week's cut in annual FHA MIP costs. The small trim in premiums was expected to save a borrower with a $200,000 loan about $500 per year in costs. The FHA's mutual insurance pool has remained above its mandated 2 percent threshold against potential loss, but as the cut was a last-minute move by the outgoing head of HUD, the incoming group wants a chance to review it to make sure that there is no additional risk that might accrue to the taxpayer. Odds favor that it will be re-instated at some point, but any review is sure to note that the size of the FHA program has expanded pretty rapidly in recent years, with GNMA-backed bonds now topping one trillion dollars, and that it wasn't all that long ago that adverse conditions left the mutual mortgage insurance fund broke for a period of time. It may be that the new group coming in wants greater reserves to buttress the fund against future losses.

President Obama's term came to an end today. It would take many more pages than this one to recount all of the changes to the mortgage market that happened under his watch. While we'll not recount them here, there were some successful policies and some that weren't, but we did see a period of perhaps unprecedented regulations, policies, agencies, bureaus and ideas to address yesterday's issues and hopefully prevent (and not create) tomorrow's problems by the law of unintended consequences.

HSH.com - Conforming 30-year mortgage rates under President Obama

Along with a energized, committed Federal Reserve, his administration saw some of the lowest mortgage rates in generations. It's by no means clear where mortgage rates will go in the next four or eight years, but there's a good possibility that a chart made in early 2025 might look a whole lot like the one here.

Other fresh evidence corroborated the uptick in growth. Two local reviews of manufacturing activity were fairly solid in January, with the Federal Reserve Bank of New York's local manufacturing barometer coming in at a fair reading of 6.5 for the month, a third consecutive positive reading, and one where orders remained in the black and employment metrics were these best since August. Meanwhile, down the NJ Turnpike to the Philadelphia Fed's region, their local thermometer popped higher to a stout reading of 23.6 for the month and now in an upward trend for the last six months. Measures of both orders and labor market conditions moved notably higher, with the latter in positive territory for a second consecutive month, the first time we've seen this since late 2015.

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   Mortgage data: Today's Rates Historical Mortgage Rates Mortgage Trend Graphs
   Calculators: Downpayment Decisioner Tri-Refinance Calculator PMI Cost Calculator
   Resources: Housing & Salary Study ARM Index Data Home Value Estimator

Although off from a recent peak, the National Association of Home Builders index of member sentiment remained robust in January, sporting a reading of 67 for the month. Measures of current sales of single family homes drifted back to 72 from 75, but this still ranks among the best readings in ten years. Expectations for sales in the next six months remained high, too, posting a 76 (down from 78), and even traffic levels at showrooms and open houses remained above par for a second consecutive month -- the first time this has happened since July and August of 2005. Home builders don't appear fazed by the recent run-up in mortgage rates and don't seem to fear the prospect for higher rates in 2017.

Of course, an 11.3 percent rise in housing starts in December was likely the proximate cause for the homebuilder's exuberance. An annualized 1.226 million units were started during the month, a rebound after a November dip and one strong enough to be the third best level of the last year. The rebound was all due to a spurt in multifamily construction kicking in; starts of single-family homes cooled a little for a second month in a row. Permits for future building were about unchanged, falling by just 0.2 percent for the month -- and held up at that level by a 4.7 percent increase in single-family permits but pulled back by a 9 percent drop in multifamily paperwork, so we may see a juxtaposition of what powers additional housing starts in the months ahead.

If HSH's weekly MarketTrends newsletter is the only way you know HSH, you need to come back and check out HSH.com from time to time. You'll find new and changing content on a regular basis, unique calculators, useful insight, articles and mortgage resources unlike anywhere else on the web.

Industrial Production powered 0.8 percent ahead in December, fully on the strength of increased output by utilities (+6.6 percent) but also supported by a little kick from manufacturing (+0.2 percent). Mining interest added nothing to the tally this month, with output unchanged from November.

Claims for new unemployment benefits totaled 234,000 in the week ending January 14. This should have been a fairly undistorted week, but perhaps there are some seasonal adjustment issues which remain due to the Martin Luther King Jr. holiday, one which occurs on the third Monday of January, a date which moves around each year. Regardless, the 43-year low for weekly claims, if it sticks, is yet another indicator that the labor market remains solid, if not outright tight.

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

Current Adjustable Rate Mortgage (ARM) Indexes
Index For The Week Ending Year Ago
  Jan 13 Dec 16 Jan 15
6-Mo. TCM 0.60% 0.65% 0.44%
1-Yr. TCM 0.82% 0.89% 0.58%
3-Yr. TCM 1.47% 1.53% 1.15%
5-Yr. TCM 1.89% 2.00% 1.52%
FHFA NMCR 3.62% 3.61% 3.93%
FHLB 11th District COF 0.603% 0.598% 0.649%
Freddie Mac 30-yr FRM 4.12% 4.30% 3.81%

As we noted above, the brief dip in mortgage rates has come to an end. If inflation and the labor market continue to throw signals that they are both in a firming pattern it will be hard for interest rates to retreat much. However, they probably don't have that much space to move higher either, and more likely are setting what boundaries and means for new range to take us though the next couple of months. By then, we'll have a handle on when the Fed is coming, how fast the economy is improving and whether or not the incoming Trump administration can effect the kinds of business- and growth-boosting changes it hopes to. For that, only time will tell.

In the near term, we have a fair slew of data due out next week with home sales and updates to GDP growth among them. With the direction already set for movement in rates next week, the only question is "how much do they rise?" Our guesstimate, based on where markets finished on Friday, is a bounce higher of perhaps 9 basis point in Freddie's 30-year FRM average. While that's happening, we'll be reviewing our last (and updating our next) Two-Month Forecast.

We've thought a lot about 2017 prospects for mortgage rates, as well as considerations for mortgage and real estate markets and more, and wrote a multifaceted treatise that covers a lot of ground. If you've not had a chance to check it out just yet, you might take the opportunity to read our 2017 Outlook.

For a interim forecast for mortgage rates and the economy, one which runs through late January, have a look at our 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 Calculator to learn exactly when you will no longer have a mortgage balance greater than the value of your home.

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