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Mortgage Rate Trends: Weekly Market Commentary & Forecast

HSH Market Trends
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Summer Drift For Mortgage Rates Continues

August 19, 2016 -- The lazy days of summer are starting to give way to a more quickened pace of activity as many schools begin their academic years. Students and parents of students are rushing about, setting things in motion for the new term, anticipating the busy days of activity that lie just ahead.

Then, there's the collective financial markets, which seem yet mired in a slow-go summer daze, more content to wander aimlessly about in well-trod areas with stock indexes near or at record highs and interest rates near record lows. As we've seen on a couple of occasions this year alone, markets lulled into a peaceful state can be susceptible to abrupt change, but here's hoping for continued tranquility for at least a while longer yet.

After a restive June, mortgage rates have spent the summer lolling about, content to wander in a tight range, and this despite signs of at least some economic improvement in the third quarter, little visible repercussion from the Brexit vote and perhaps even a growing likelihood that the Fed will make a move come September. Nothing has seemed to move them much for weeks and weeks now.

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 retreated by the same two basis points (0.02 percent) it added a week ago to slip back to 3.55 percent. The FRMI's 15-year companion barely moved but managed to shed a single basis point, edging downward to an average 2.95 percent. Popular with first-time homebuyers, rates on fully-insured FHA-backed 30-year FRMs remain a little below their Fannie and Freddie counterparts and also featured a minor fall, declining by two basis points to a land at a compelling 3.37 percent. Meanwhile, the overall 5/1 Hybrid ARM also decreased a little bit, falling by two basis points to 2.87 percent on average.

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

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Periods of mortgage-rate tranquility have been abruptly broken (more or less) before. Recent examples include the Fed's then-Chairman Ben Bernanke's musings in mid-2013 about how long the Fed would keep rates low, issues in Greece in 2010 and again in 2015, the Fed move last December, the recent Brexit vote. Some of these have seen rates break lower, some higher. It could be that the next change is just around the corner, such as the collapse of banks in Italy due to bad debts or even an unexpected lift in rates by the Federal Reserve. The first is arguably as unpredictable as the next, but at presidents of at least two Federal Reserve Banks (John Williams in San Francisco and William Dudley in New York) both suggested that they think a move in rates should some "sooner rather than later" (Williams' quote).

We've noted at times this year that it bears consideration that the Fed last moved rates higher (December) in a period of only fair economic growth and with markets in a fairly sanguine position. We have something akin to those conditions now (or those conditions seem to be coming into place) but markets still seem to be discounting this potential. Perhaps this will change in the weeks ahead, but for now, little concern seems to be being expressed. It may be that a continuation of mixed-to-solid economic data isn't sufficient, or that it will take another strong jobs report to provide more convincing evidence. The minutes from the July Fed meeting suggested that the group wasn't convinced that any move was in the offing, preferring to see move evidence before a decision was made, but the tenor of the document seemed to be leaning somewhat more in that direction. We'll know soon enough.

Gains in the housing market continue at a lumbering pace, but perhaps somewhat less lumbering of late. Rangebound for many months, housing starts flared higher in July by 2.1 percent, climbing to an annualized pace of 1.211 million units started. That was good enough to move the needle to its highest position since August 2007, and given the boom-and-bust cyclical nature of the housing market, is starting to approach something closer to normal levels than not. From here, starts will have to continue to move higher to reach normal levels but seem to be moving slowing in the right direction at least. Single family starts were essentially unchanged for the month at 770,000 units, but multifamily construction kicked 5 percent higher to 441,000 units initiated. Permits for future building activity were flat, easing by 0.1 percent to 1.152 million (annualized) units expected.

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Reflective of an improved month of building activity, sentiment among home builders edged higher. The National Association of Home Builders barometer of activity edged up one tick to a reading of 60 in August. The gain was the result of an uptick in single-family sales (up two ticks to a robust 65) and expectations for the next six-month period (up one notch to 67). Traffic at model homes and showrooms failed to follow the move higher, easing one point to 44, a value about average for the year so far. Underlying conditions that support housing (such as jobs, mortgage rates and availability) are pretty good but supply constraints and traditional underwriting standards (both in the new and existing home markets) are impinging on affordability and access to financing for many buyers.

Overall industrial output had a second consecutive good month in July, rising by 0.7 percent for the period. Although at least partly driven by another 2.1 percent gain in utility output (hot weather tends to do this), conditions supporting manufacturing seem to have improved a little bit, as a 0.5 percent rise in output was tallied. Even mining activity, a sector battered by the drop in oil prices and amid weak commodity costs managed to add to the total this month, rising by 0.7 percent. With gains in two of the last three months, it may be that the drag from this sector has stabilized at least and may again be able to contribute to overall economic growth.

That manufacturing is moving again is good, even if it would seem that any momentum is halting, at best. Two local reviews of manufacturing activity both hovered around the flatline in August, one climbing over it and one sliding under. The positive move came in the Philadelphia Federal Reserve's district, where their barometer moved from a negative 2.9 to a positive 2 during the month, even as orders and employment inputs were a drag. Up the New Jersey Turnpike to the Federal Reserve Bank of New York's region, activity cooled a bit overall, where their gauge eased from a positive 0.6 in July to a negative 4.2 in August, a fall which came despite a pickup in new orders.

  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 Index of Leading Economic Indicators from the Conference Board suggests that the third quarter got off to a pretty solid start. In July, the LEI rose by 0.4 percent, an improvement over the 0.3 percent rise in June and good enough for the best back-to-back months of this year to date. It would seem that there is some economic momentum taking us into August and perhaps beyond, at least to the extent that the LEI forecasts the future, but we'll need to wait to see how that rolls out in the weeks and months ahead.

Early indications are that hiring growth in August may be a little less strong than that seen in June or July. Initial claims for unemployment benefits legged higher a couple of weeks ago relative to those seen in July, but modestly so. As it appears persistent at the moment, this pattern may suggest a cooling in new hires during the month, so it may be a struggle for the next hiring report to crack the 200,000 mark. It's too soon to tell, and to be fair, hiring only needs to be in the 150,000 range to be sufficient to absorb growth in the workforce and keep the unemployment rate pretty steady. In the week ending August 13, some 262,000 new applications for assistance were filed, down 4,000 from the prior week but still above month-ago levels.

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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.
Current Adjustable Rate Mortgage (ARM) Indexes
Index For The Week Ending Year Ago
  Aug 12 Jul 15 Aug 14
6-Mo. TCM 0.44% 0.41% 0.24%
1-Yr. TCM 0.56% 0.52% 0.39%
3-Yr. TCM 0.84% 0.81% 1.05%
5-Yr. TCM 1.12% 1.09% 1.57%
FHFA NMCR 3.69% 3.70% 3.75%
SAIF 11th District COF 0.690% 0.691% 0.687%
HSH Nat'l Avg. Offer Rate 3.57% 3.54% 4.01%

If you're on the lookout for inflation -- and the Fed of course always is -- you'll need to look beyond the latest report covering the Consumer Price Index for July. Compared to June, CPI was unchanged, held in check by an unexpected decline in energy costs, which had been rising over the prior four months. Leaving out the most volatile components, so-called "core" CPI did edge 0.1 percent higher, but that was only good enough to keep the annual rate of core CPI at a flat 2.2 percent. Headline CPI continues to be held well in check, with three 1.1 percent annualized values in April, May and June giving way to a now 0.9 percent rise in prices over the last 12 months. The Fed prefers to follow a different measure of costs, but that has also been pretty steady below desired levels for a good long while.

As the summer slowly approaches its end, we still have several weeks to go, and the pattern has been a pretty tranquil one for weeks now. There's little reason to expect that to change, at least until the month turns, Labor Day passed and the greater urgency of the fall begins to set in. The data due out next week seem unlikely to disturb the quiet much, but we'll get new and existing home sales data (probably pretty positive), the national activity index from the Chicago Fed, an update to second quarter GDP (a period falling well behind us now) and a new other items. A bit of firming in mortgage rates seems most likely to us, probably something on the order of three basis points in our FRMI, give or take a basis point. Mortgage rates are still in a summer drift, and will be for a bit longer yet.

For a longer-range outlook for mortgage rates and the economy, one which will run through late September, have a look at our new Two-Month Forecast.

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 Calculators 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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