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Mortgage Rate Trends: Weekly Market Trends & Forecast

HSH Market Trends
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Rates Down, Bumping Against May 2013 Wall Again

New Two-Month Rate Forecast and Annual Outlook at HSH.com

December 19, 2014 -- Mortgage rates went down again this week, but by the time the dust settled, the move wasn't all that huge. Truth be told, after an early week swoon, mortgage rates are actually firming a little from those levels at the moment. Such is the nature of surveying that point-in-time observations are just a snapshot of a moving stream of changing information; when things become more volatile or begin to move more quickly, more frequent observations are better than less, and results which include more data can be smoother than those with fewer inputs.

Of course, HSH reports both weekly and daily data, so you can track rates on a more or less frequent basis, as dictated by your needs.

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 declined by another six basis points this week (0.06%) to ease to 3.97 percent. The FRMI's 15-year companion managed a seven basis point decrease, presenting homeowners looking to refinance with an attractive average of 3.30 percent. Fully-insured FHA-backed 30-year FRMs remain well below even its conforming counterpart, managing a one basis point slip this week to edge down to 3.73 percent. The overall 5/1 Hybrid ARM followed suit with a seven basis point fall of its own, dropping back to 3.08 for the week. You can find averages for other products in HSH's Statistical Release -- the link is just below this paragraph.

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

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Even with the recent declines in rates, it will be difficult for there to be headlines saying much more than "rates are as low as May 2013 levels", since at that time conforming 30-year fixed rates had climbed from an average 3.49 percent (just a single basis point above about 60-year lows) at the start of the month to 3.94 percent at its end. It would take a serious economic stumble from where the world stands now to even get to that level, let alone move below it.

Markets were volatile this week, unsure of how to digest the Fed's latest message about the path for interest rates. Much as it appears that they really wanted to, the FOMC couldn't bring itself to completely abandon the "considerable period" phrase that they have consistently used to describe the amount of time before they will begin raising short-term interest rates. Instead, in the message provided at the close of the latest policy-setting meeting, the central bank said it would be "patient" in raising rates, then sidestepped to say that it believes that "patient" is a rough functional equivalent for "considerable time". When pressed at the press conference after the two-day affair, Fed Chair Janet Yeller suggested that she didn't expect to see rates increased for "at least the next couple of meetings."

A couple of meetings -- two -- would see an increase in rates coming as soon as April 28-29 but only if things keep going the way they are at the moment, with strengthening labor market metrics and modest inflation. The case for moving rates higher sooner would be strengthened somewhat if the housing market began to show more signs of life, a source of economic weakness the Fed continues to point out in its releases. Odds still favor a Fed "liftoff" in June, but there is now an outside chance that sooner could happen too. Of course, there will be plenty more opportunities to talk about the Fed's posture before and after the next meeting on January 27th and 28th.

We've looked ahead! See our 2015 Outlook for mortgage, real estate markets and more.

For the most part, housing markets are actually pretty fair, but there's always room for improvement. The National Association of Home Builders index of member sentiment did fall by a single tick in December, landing at 57 for the month, but that's still the second highest value of the recovery to date. Measures of sales of single family homes eased to 61 from 62 in November, as did expectations for sales in the next six months, which eased from 66 to 65. Traffic at sales offices and model homes remained a steady 45, still low, but good enough for a tie of the second best reading of the expansion.

Housing starts did slip a little in November, but not much. The 1.6 percent month-to-month decline left starts at an annualized pace of 1.028 million annualized, and starts have been over the 1 million annualized mark in four of the last five months, a pretty healthy level. Single-family starts fell back to a 677,000 annual rate, closer to trend than not, but multi-family construction rose from 329,000 to 351,000. Permits for future activity slid by 5.2 percent, but like starts continue along in a fairly solid string, with an annual pace of more than 1 million seen in six of the last seven months.

Industrial production powered ahead in November, gaining 1.3 percent, pushed higher by an increase in manufacturing of 1.1 percent and a 5.1 percent bounce in utility output. Mining operations subtracted from the increase, but with the gain, overall output has now surpassed its pre-recession high, so the recovery here is more or less complete. As the overall amount of production floors in use finally cracked the 80 percent mark (80.1 percent for the month) and with manufacturing also firming, we'll have to start to pay more attention here to see if any production-related bottlenecks start to have any influence on inflation. For at least a while longer, there is still available slack, but that has been diminishing.

Of course, there's nothing to indicate that it's all blue skies and sunshine for manufacturing. In fact, some regional reports suggest a leveling off (if not outright cooling) in activity. For example, the Philadelphia Federal Reserve's report of activity in its domain dropped from a very outsized November reading of 40.8 to a still-strong 24.5 for December, as orders and employment both cooled during the month. Up the coast in the New York Federal Reserve's region, the slowdown was much more pronounced; the barometer here went from 10.2 in November to minus 3.6 in December, the first negative reading in two years. Orders declined for the second time in the past three months, but employment was virtually unchanged. Although the New York gauge ended the third quarter back in September on a multi-year high note of 27.5, it ended the fourth quarter with a below-zero thud. Meanwhile, the Kansas City Fed's report was just about unchanged, sporting a December value of 8, up one tick from November.

Already low inflation continues to slide, dragged down of course by falling energy prices. The Consumer Price Index declined by 0.3 percent, a larger fall than was expected. Headline CPI is now rising at just a 1.3 percent annual rate, and the trend seems downward, excepting perhaps food costs. The "core" rate of inflation strips out volatile food and energy costs and is thought to provide a truer picture of price trends, and core inflation rose by 0.1 percent in November, and 1.7 percent for over the last 12 months. The Fed prefers a different inflation measure, the Personal Consumption Expenditure index, but no matter where you look, inflation is soft, and probably softening further.

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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 state-by-state statistics are now here.
Current Adjustable Rate Mortgage (ARM) Indexes
Index For The Week Ending Year Ago
  Dec 12 Nov 14 Dec 13
6-Mo. TCM 0.10% 0.07% 0.10%
1-Yr. TCM 0.20% 0.14% 0.14%
3-Yr. TCM 1.04% 0.98% 0.65%
5-Yr. TCM 1.61% 1.64% 1.51%
FHFA NMCR 4.11% 4.06% 4.38%
SAIF 11th District COF 0.671% 0.663% 0.957%
HSH Nat'l Avg. Offer Rate 4.03% 4.10% 4.52%

Weekly unemployment claims remain low and point to continued improvement in the job market. In the week ending December 13, 289,000 new filings for assistance were received at state unemployment offices. Leaving out a one-week flare, we've now spent several months below the 300,000 level, so a more normal (perhaps better than normal) rate of firings is happening, and more hiring should be taking place as a result. At the moment, there's no indication we'll a surge in hiring in December like we say in November, but we expect to see a solid gain when the next employment report comes.

From their lowest levels, underlying interest rates which influence fixed-rate mortgages have moved higher. The yield on 10-year U.S. Treasury bonds got as low as 2.07 percent on Tuesday, climbed as high as 2.22 on Thursday but settled back some on Friday. Required Net Yields posted by Fannie Mae also moved off Tuesday bottoms to return to week-ago levels, so signs point to a firming in mortgage rates next week. The Christmas holiday will see bond markets closing early on Wednesday and all day on the 25th, so any increase will most likely be seen by Tuesday and probably hold there.

Despite the holiday-shortened week, there is a fair bit of data out, including the Chicago Fed's National Activity Index, reports covering sales of new and existing homes for November, incomes, consumer sentiment, an update on GDP for the third quarter and more. It seems to us that we'll take back a little better than half of this week's dip, and will probably see an increase of four basis points or so if the tenor of the data is as expected.

For a longer-range outlook for rates and the economy, one which will take you up until late February, have a look at our new Two-Month Forecast -- and for the year as a whole, check out our 2015 Outlook for mortgage, real estate markets and more. If you're into really long-range reviews, 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 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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