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Mortgage Rate Trends: Weekly Market Trends & Forecast

HSH Market Trends
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A Leveling For Mortgage Rates

May 22, 2015 -- Down, then up. Up, then down and then back up again. Such is the pattern for interest rates in a period of uneven economic activity and inflation. The economic downturn of the first quarter is fading behind us, and so far the upswing in activity for the half-completed second quarter seems pretty mild. Even so, the change in direction (and plenty of other influences, too) have served to press rates upward again.

Minutes from the April Fed meeting made it seem very unlikely that a change in monetary policy will come at the next meeting in June, and the Fed will wait for an accumulation of positive data on the labor market and price pressures before making any decisions about when to begin lifting short-term interest rates and ending its process of reinvesting proceeds from maturing bonds. With Memorial Day the unofficial start of summer, we may not see any change from the Fed until beyond Labor Day. However, this doesn't necessarily mean we're about to enter a period tranquillity for mortgage rates; in fact, the opposite may be true.

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 eased by two basis points (0.02%) this week to an average of 3.98 percent. The FRMI's 15-year companion also managed a two basis point fall, slipping back to an average interest rate of 3.26 percent. Popular with first-time homebuyers, rates on fully-insured FHA-backed 30-year FRMs remain considerably below their conforming counterparts also shed two basis points, dipping to 3.73 percent for the week. Meanwhile, the overall 5/1 Hybrid ARM shed four basis points, sliding back below the three percent level and declining to 2.97 percent. HSH's FRMIs include both conforming and jumbo rates, providing borrowers with a broader view of mortgage conditions.

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

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The minutes of the Fed meeting indicated that FOMC members are content with a meeting-by-meeting review of whether the time has come to lift rates. After June, there is a July get-together which might still be in play for a rate change; probabilities of this are low at the moment, but we'll have seen employment and inflation data for May and June by that point. If the data is firm, the probability of a change will increase, but a September move is still most likely, and should the economy perform as expected, the Fed will also have July and August data on which to base their decision. If the data in between meetings is strong, we could see more volatile conditions for interest rates.

After a March hiccup, the labor market seemed to get back on track last month. If the trend in new claims for unemployment benefits is an indication, May should produce an increase in hiring similar to April's, but we'll not know that for a couple of weeks yet. In the week ending May 16, some 274,000 new applications for assistance were filed, continuing s string of sub-300,000 new claims which began at the beginning of March.

Price pressures of also the Fed's concern. That inflation has been low and falling for a long stretch has meant that the central bank could be patient in raising interest rates. Although the Fed prefers to track a different measure of price pressures, the Consumer Price Index will also move in the same direction and is indicative enough of there inflation is headed. Although the 0.1 percent headline increase in prices for April was half that seen in March, and even with the 0.1 percent decline in CPI over the last year inflation isn't dead, just hidden. Peeling back the most volatile cost inputs of energy (-1.3 percent in April) and food costs (no change in April) the so-called "core" CPI reveals prices running at a 1.8 percent annual clip for the second month in a row, a figure much closer to the Fed's inflation speed limit than not.

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While the meager rise in GDP for the first quarter is likely to be revised away, leaving us with a negative value for the period, the second quarter didn't start with much speed either, according to the Chicago Federal Reserve's National Activity Index. The NAI -- an amalgam of some 85 economic indicators -- put in a fourth consecutive negative reading in April, if with a lesser decline than any of those values. The minus 0.15 mark for this barometer suggests the economy grew at a sub-par level during the month but has improved somewhat relative to the recent trend.

The Conference Board's index of Leading Economic Indicators strengthen in April, too. A February low reading of minus 2 gave way to a 0.4 percent lift in March and now a 0.7 percent rise in April, so the trend seems to be perking up. The LEI purports to be a forward-looking tool, but probably better reflects conditions in the month its components were gathered. Regardless, the trend has turned more positive, with April's value the highest monthly mark since July of last year.

For the past nearly seven years, the Fed has done all it can to help housing markets. Overall, the Fed's MBS buys produced liquidity, while Treasury purchases lowered interest rates. In turn, those and lower interest rates stimulated demand, improved affordability for a time and certainly served to reflate home prices over the last couple of years, pulling many folks out of underwater situations. Despite all these things, the recovery in housing remains muted, if steady. A lack of desirable inventory, home prices rising faster than incomes, more traditional mortgage underwriting standards and demographic changes are all contributing to the sluggish market.

In April, housing starts rebounded after a rough patch, climbing by 20.2 percent on a month-to-month basis to land at a 1.135 million (annualized) pace of initiation. Single-family building moved to 733,000 units started, while multi-family popped up to 402,000 for the month. While beneficial, the increase in April simply filled in the shallow hole of soft activity in February and March, but as it was the highest annualized rate since June 2008, it is something to be optimistic about. Building permits, a harbinger of future activity, also rose smartly, rising 10.2 percent, with the biggest influence coming from the multi-family sector.

  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 Website Tools and Widgets

Despite the surge in building, homebuilders remain only cautiously optimistic. In fact, they were less sanguine about business prospects in May than they were in April, according to the National Association of Home Builders. The NAHB index eased by 2 points in May, slipping to 54, as did the measure of single-family sales, which eased to 59 in May from a more robust 61 in April. Optimism about the next six months improved to a solid 64 even as the measure of traffic at showrooms and model homes remained at a weak 39. As a diffusion index, values above 50 indicate expanding activity and sentiment, with contraction and more pessimism below that level.

The spring homebuying season got off to a soft start, according to the National Association of Realtors. April's annual pace of 5.04 million homes sold was 3.3 percent lower than was March's figure, but the softness is less surprising when you consider the relative lack of homes to buy and that the ones being sold were more expensive, to boot. Even a rebound in inventories of unsold homes to 5.3 months of supply (the most available stock since last September) left them well short of a "normal" six-month supply. Those lean inventories served to support the prices of homes which sold during the month with a year-over-year gain in prices of nearly 9 percent. The coupling of a firming of mortgage rates of late and quickly rising home prices does put pressure on affordability, especially as income growth has been meager at best over the past few years.

We have known for a while that the strong dollar had crimped export growth (it's one of the reasons that GDP will probably be revised to negative territory) but the collapse in oil prices has also hurt manufacturing's contributions to the economy. The Kansas City Federal Reserve's regional indicator continued a deepening slump in May, sporting a minus 13 value for the month, this indicators lowest value since 2009. Energy interests have pulled back in the district, but lower machine tool orders and more continue to weigh on the region. That said, the Philadelphia Fed's local barometer has been pretty stable at low levels after a huge plummet to end 2014. May's reading of 6.7 was a touch below April but about average for 2015 so far, but there no indication to be seen a resurgence of activity is in the offing.

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HSH's Statistical Release features charts and graphs for eleven mortgage products, including Hybrid ARMs.
Our state-by-state statistics are now here.
Current Adjustable Rate Mortgage (ARM) Indexes
Index For The Week Ending Year Ago
  May 15 Apr 17 May 16
6-Mo. TCM 0.09% 0.09% 0.05%
1-Yr. TCM 0.24% 0.23% 0.09%
3-Yr. TCM 0.96% 0.85% 0.82%
5-Yr. TCM 1.54% 1.33% 1.59%
FHFA NMCR 3.77% 3.88% 4.37%
SAIF 11th District COF 0.687% 0.700% 0.709%
HSH Nat'l Avg. Offer Rate 4.00% 3.77% 4.27%

There are plenty of opposing forces in the economy right now, both domestically and global. There are bright spots here and there, but all seem temporary or fleeting at best, and broad reliable traction remains elusive even though the recovery is becoming quite old. Even as we continue to slog through murky economic times, optimism for the future remains pretty strong, and this has played a part in the recent firming of interest rates. If things are souring, rates decline; if things are improving (or are expected to) rates firm.

This is where we find ourselves at the moment; if expected improvements are borne out by the incoming data, rates are more likely to firm; conversely, it might take a string of disappointments at this point even to revisit recent lows. It's hard to describe, but there feels something fairly "floorish" about the present level of mortgage rates, where there seems to still be more an overall upside bias than not at the moment -- that is, it feels as though that in the bigger picture that more effort is needed for them to decline than to rise in the current climate.

Despite a holiday-shortened week next week, we'll get some fresh data to ponder, including an update to GDP, new home sales and a bit more. We could see a bit more settling for mortgage rates next week, probably totaling not more than a couple of basis points at most.

For a longer-range outlook for rates and the economy, one which will take you up until late June, 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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