Mortgage Rate Trends: Weekly Market Trends & Forecast
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A Flat Spot For Mortgage Rates
April 17, 2015 -- In an April valley between the market-moving monthly employment report (out on the first Friday of each month) and the next Federal Reserve Open Market Committee meeting (28th and 29th of this month) mortgage rates have been mostly listless and held fairly steady at 2015 or greater lows this week.
In a period where each report continues to paint a picture of an economy in a muted growth pattern at best have come additional clues that the Fed remains undecided about making any change to policy anytime soon.
In March, the Fed dropped the use of the word "patient" when loosely describing the period of time that would elapse before it might raise interest rates. As recently as February, it had indicated that there was little reason to expect any change "for a couple of meetings", which initially put a June change to short-term rates on the table. However, both of these characterizations of how soon a change would come occurred before the recent spate of weaker economic data had accumulated. In March, the Fed provided "forward guidance" that it thought a policy change at the April meeting was "unlikely", and given the present economic state of things, it is to be expected that the Fed will be substituting "June" for "April" when the end of the meeting on the 29th comes around.
So, for the moment at least, a flat spot in the economy has produced a flat spot for mortgage rates.
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 a single basis point (.01%) this week, slipping to an average 3.77 percent, another 2015 low. The FRMI's 15-year companion joined in with a two basis point decline, easing to an average rate of 3.10 percent, also another new low for the year. Popular with first-time homebuyers, rates on fully-insured FHA-backed 30-year FRMs remain well below their conforming counterparts and sported a decline of four basis points this week, wandering to an average rate of 3.57 percent, just above 2015 lows, while the overall 5/1 Hybrid ARM bucked the mild trend with a two basis point increase (0.02%) to lift to 2.90 percent for the period.
See this week's Statistical Release and Mortgage Trends Graphs.
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The Fed's own survey of regional economic conditions (aka the "Beige Book") didn't report much by way of accelerating economic conditions in the six weeks ending April 3. "Modest", "moderate", and "slight" were among the terms used to describe the local economies surveyed by the regional Federal Reserve Banks. With the Fed looking for clues about the health of the labor market and especially wage growth, the report told of stable to modest improvement occurring overall, but some struggles in manufacturing and energy-related concerns. That said, there was perhaps a whisper more wage inflation than we've seen in a while, at least in some areas. For example, in the San Francisco district, there was a "seepage" of wage pressures from upper-tier jobs in urban areas to middle-tier jobs in smaller towns. Recent announcements of voluntary "minimum wage" increases by the likes of Wal-Mart and McDonald's may raise an eyebrow or two at the Fed, should they be joined by others, a signal that the labor market is tightening up.
Should wages rise more broadly, it would make it easier for business to raise prices, and that would tend to lift inflation. After months of being affected by falling energy costs, the Producer Price Index rose by 0.2 percent in March, its first headline increase since last October. Core PPI also rose by 0.2 percent, but where the headline figure including cheaper energy has declined by 0.8 percent over the last year, core PPI (which excludes them) has remained on the positive side of the fence, and is 0.6 percent higher than last year at this time.
A similar story is seen in the Consumer Price Index. In March, a 0.2 percent rise in headline prices was noted, with a 1.1 percent rise in energy costs pulled back (for a change) by a 0.2 percent decline in food prices; the net effect is that consumer prices in March were unchanged when compared against a year ago. That said, core CPI also moved 0.2 percent higher, and is now 1.8 percent above year-ago levels, its highest annualized rate since October. Although the Fed prefers a different measurement of price pressures, the Personal Consumption Expenditure index, it stands to reason if core CPI inflation is firming that it will show in their favored indicator, too.
A couple of days after the Fed next meets comes the April employment report. If wages are firming a bit, and if inflation is also firming a bit, how will financial markets react if there is a resurgence in hiring? A policy move in June seems off the table for now, and there are few indicators of any acceleration in growth to support a strong rebound, but if one should happen we will probably have an abrupt shift in interest rates to the upside, with a Fed move again more imminent.
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Housing markets remain a conundrum for the Fed. Traction remains hard to come by despite near record low mortgage rates, more low down payment mortgages in the market and even retreating credit "overlays" which made getting financing difficult for lesser-credit borrowers. A lack of inventory for sale has kept prices firm and continues to pinch affordability in many places as income growth trails price increases by a fair bit, but there's not much the Fed can do about that. At some point, the ongoing return to positive equity for more borrowers may help put a few more homes on the market, and the intersection of improving credit fortunes and slowly loosening underwriting terms may put a few more buyers in the market, but there's not much by way of immediacy in terms of market impact from any improvements in either of those conditions.
More home building would loosen the market a little bit, but both builders and buyers remain cautious. Housing starts did edge higher by 2 percent in March, nudging up to a 926,000 annualized level, recovering just a tad of what was hopefully a weather-related plummet in February. That said, the mild rebound saw single-family starts rise to 618,000 units begun while multifamily projects eased back to 308,000. Permits for future activity remained over the 1 million mark at 1.039 million (annualized) units yet to come, but this was the lowest figure since last September and a decline of 5.7 percent compared to February.
Members of the National Association of Homebuilders did report their first collective improvement in sentiment in a few months' time, with their indicator rising to a value of 56 in April from 52 in March. The measure of single-family sales, already pretty solid, moved higher during the month to a reading of 61, well above the breakeven threshold of 50. Expectations for conditions to come also moved higher as well, and while the measurement of traffic at showrooms and open houses did add four points, the 41 level it rose to was still shy of where we closed out last year and began this one.
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Largely due to cheaper energy costs, consumers have seen a modest boost in disposable income over the last few months. However, as we've noted here in recent weeks, they appear to be banking those savings and paying down credit card balances as quickly as possible rather than spending these freed dollars. Retail sales did bounce 0.9 percent higher in March, but this was a smaller-than-expected rebound and does little to erase reductions in "headline" outlays seen in each of the last three months. To be fair, "core" retail sales (excluding pricey auto purchases and the influence of erratic gasoline prices) have fared a bit better over that time, with milder dips in January and February, but also a more muted rise of just 0.5 percent in March. On a March 2015 to March 2014 comparison, the year-over-year increase in retail sales was just 1.3 percent, the smallest improvement since 2009.
A couple of measures of local manufacturing activity reported mixed conditions. The Federal Reserve Bank of New York's manufacturing review posted a reading of -1.2 percent in April, well short of expectations and the lowest figure since December. The report detailed that orders continued on a declining path and employment metrics softened during the month. A bit of a better climate was seen in the report from the Philadelphia Federal Reserve Bank; a 2.5 point climb put this local indicator at 7.5 for April, but in reality the trend here is very flat over the last few months, even if activity is holding at a mildly positive level.
Industrial Production declined by 0.6 percent in March, dragged backward by a 5.9 percent reduction in utility output and a 0.7 percent slump in mining production. Keeping the headline figure from an even lower reading was a 0.1 percent rise in manufacturing, a first positive showing seen here since last November. With a soft period for factories and such, the percentage of industrial floors in active use continued a slow decline last month, easing to 78.4 percent, trending away from levels which might indicate inflation-enhancing bottlenecks in capacity.
Consumer moods were improved in the early part of April. Perhaps the advent of spring after a rough winter was a contributor, but whatever the reason, the University of Michigan noted a 2.9 point rise in their Consumer Sentiment index in the preliminary April reading. Assessments of conditions both current and future moved higher in near equal increments, and should these gains hold for the whole of the month, it would be the first rise for Sentiment since January.
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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.
Initial claims for unemployment assistance spent a sixth consecutive week below the 300,000 level in the week ending April 11. During the week, some 294,000 new applications for benefits were filed at state unemployment offices. Although this week's figure was the highest of the recent trend, it continues to point to a pretty strong job market, or at least one with only minimal job terminations.
Reflective of the muted level of activity in the economy, the index of Leading Economic Indicators from the Conference Board rose a mild 0.2 percent in March. The last three months have seen 0.2, 0.1 and 0.2 percent changes, about one-third the gains notched in the last three months of 2014. To the extent that it foretells future activity, we would to see expect mildly expanding economic conditions in the period just ahead, but the LEI may better indicate the state of things in the month in which its components are gathered.
At the moment, it's a mixed economic bag, at best. There's little immediate worry that the Fed will make a move anytime soon, as they will need to see more evidence that the winter's soft patch is more temporary than not. However, with the data soft but not declining precipitously, interest rates can only fall so far, as there remains enough growth and now perhaps some wage and price considerations to keep them level, if not firming mildly.
As long as markets and the Fed remain in "data dependent" mode, and as long as the overall temperature of the data continues to be lukewarm, interest rates and mortgage rates don't have much reason to wander far in either direction. More fresh clues will come next week, when we'll see both new and existing home sales, durable goods orders, the Chicago Fed's NAI and a bit more data to digest. To us, it seems most likely that the lull for mortgage rates will continue next week, even if the March housing reports add to mild February gains. A wobble of a couple of basis points seems at hand; the direction of the wobble will depend on the relative strength of the data.
Meanwhile, we'll be pondering a longer outlook as a new Two-Month Forecast is due at the end of the week.
For a longer-range outlook for rates and the economy, one which will take you up until late April, 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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