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Mortgage Rate Trends: Weekly Market Trends & Forecast

HSH Market Trends
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The Fed's Trajectory Change

March 20, 2015 -- Although the Fed says it will no longer use "patience" when it comes to raising short-term interest rates, it would appear that they will instead be exercising a kind of lengthy discretion when lifting interest rates. Confused? It's little wonder.

The close of the Fed meeting did show that the likelihood of interest rate increases at some point this year is now virtually 100%, even if the timing of the first move remains unclear. However, the latest set of "dot plots" denoting the outlooks of FOMC members of how high the Federal Funds rate would rise this year says that the most likely course going forward is one of smaller increases over a longer period of time. FOMC members collectively now expect a lower level of the Fed Funds at the end of the year than they did just three months ago. The "dot plots" revealed that a majority 10 of 17 FOMC members see the Fed Funds at 0.625 percent or 0.875 percent at the close of 2015; four entries were above and three were below this range.

Sensing that the period of rock-bottom interest rates is likely to persist for a while longer yet, stock markets rallied and bond yields dropped, pulling mortgage rates down with them.

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 eight basis points this week (0.08%), falling back to 3.88 percent. The FRMI's 15-year companion shed five basis points, sliding to an average rate of 3.23 percent. 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 six basis points this week, posting an average rate of 3.68 percent. Finally, the overall 5/1 Hybrid ARM increased fell by eight basis points (0.08%), slumping to 3.04 percent on average for the week. All the averages are roughly in the middle of each product's high and low marks for the year.

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

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In the statement which closed the meeting, the Fed made it as clear as they can that a change to rates at the April meeting remains "unlikely"; however, this still does leave June in play, but this still may or may not actually become the date of "liftoff" for rates. As the Fed appears to intend to exercise caution, lifting rates more slowly and with a Fed Funds rate somewhere probably ending 2015 around 0.75 percent, we could possibly see, for example, a pattern of moves of a quarter percent in June, September and December to get us there. If there is no June move, this would suggest the Fed would need to make a policy change in three of the next four meetings (July, September, and either October or December). However, this might be too compressed of a schedule even for a patient Fed; failing three small moves, we would need to see less frequent moves but more sizable ones of up to a half-percentage point move at one time; this just seems unlikely at the present time.

Given the possible cadence of moves though the rest of the year, and in light of the fact that markets will need time to digest not only one move but also prepare for others, the odds seem to favor a June liftoff. That said, with the Fed "data dependent" more volatility (both up and down) is to be expected, as the "will they or won't they?" game gets replaced with a "is a quarter of half point move coming?" one.

In the meeting-closing release, the Fed also noted that "economic activity seems to have moderated somewhat" since the last meeting. That slowing has been readily apparent, and there were more such signs of muted economic activity available this week.

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Even with an improved economy and near record-low mortgage rates, housing continues to struggle to find traction. Existing home sales may be being curtailed by low levels of inventory, and sales of new homes remain a fraction of their peak levels. Members of the National Association of Home Builders felt a little less comfortable again last month as the NAHB's Housing Market Indictor edged down to 53, a two point fall and a third consecutive decline. Anything over a value of 50 indicates fair conditions, but the slide to levels seen last July suggest only a modest pace of activity at best. The measure of single-family sales held up well even with a three-point ease to 58; expected activity over the next six months also remained solid at 59, but traffic at open houses and showrooms continued slumping.

The more dour moods by builders in March may be because they had a lot less work to do in February. Housing starts cratered by some 17 percent during the month, falling to a 897,000 annualized pace of initiation from a level of better than a million. As it did last year, weather certainly may have played a role this winter, as the present annual rate is identical to that seen last January. During the month, both single- and multi-family starts slumped (-14.9 and -20.8 percent, respectively) so there wasn't much by way of a bright spot in a pretty dark report. If there was any sort of hope to be held out, it was the promise of better days to come, as permits for new construction actually rose by 3 percent during the month. Here's hoping that the poor starts report is revised away or is only a stumble in what has been a fair pattern for months.

Manufacturing has been having a rougher time of if over the last couple of months. Between the stronger dollar and slow economic conditions in export markets, let alone a more temperate domestic economy, it's little wonder that a couple of looks at regional manufacturing activity remain at low levels. The Federal Reserve Bank of New York's Empire State Manufacturing index trended lower again in March, easing 0.9 points to a value of 6.9 for the month. New orders declined by 2.4 percent, but hiring appears to have strengthened. Just down the New Jersey Turnpike, the Philadelphia Federal Reserve saw a mild decline of just 0.2, leaving their indicator at a value of 5 for March. After a November reading of 40.2 and a solid 24.3 in December, activity measured here has been very quiet now for the first three months of 2015. Although new orders remained positive, they were less so than in February, as was the employment trend.

  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
  

Industrial Production managed the barest of gains in February, rising just 0.1 percent, but that was an improvement on a negative January. Utility output surged during the month, largely due to bitter cold in a fair swath of the country, but that 7.3 percent gain was pared back by a 0.2 percent decline in manufacturing and a 2.5 percent fall in mining output. The percent of industrial production floors in active use eased by 0.2 percent, slipping to 78.9 percent, and has edged lower in each of the past three months.

The index of Leading Economic Indicators nudged up by 0.2 percent in February, matching January's figure. A spurt of activity late last summer and early fall powered the index higher at that time, but it has since settled back to reality, which appears to be one of a more muted economic path for the moment. To the extent that the LEI forecasts future activity, we should remain on a modest to moderate pace, but the LEI may better reflect the economic temperature in the month its components were gathered.

New claims for unemployment benefits remained at a sub-300,000 level for a second consecutive week, the first such back-to-back readings since late January, and perhaps an indication that the labor market is picking up again after an uneven stretch.

The Federal Reserve has made it pretty clear that they won't be raising interest rates anytime really soon, and with economic growth damped and inflation well below their hoped-for level, there's little reason to. That won't always be the case, and the Fed remains committed to getting interest rates above emergency levels so that they will have some ammunition for the next downcycle whenever it may come. The old business cycle may or may not be dead, but this expansion has now been running for a number of years, and at some point even a reliable slow-growth pattern may fade and require something to re-spark it again. With rates holding near the zero bound, and with a bloated balance sheet, the Fed has little such flexibility currently.

See fresh mortgage rates every day at HSH.com Follow us on Twitter for even more need-to-know news!
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
  Mar 13 Feb 13 Mar 14
6-Mo. TCM 0.10% 0.07% 0.08%
1-Yr. TCM 0.25% 0.24% 0.12%
3-Yr. TCM 1.09% 1.04% 0.77%
5-Yr. TCM 1.61% 1.51% 1.59%
FHFA NMCR 3.98% 4.00% 4.21%
SAIF 11th District COF 0.698% 0.692% 0.784%
HSH Nat'l Avg. Offer Rate 3.96% 3.90% 4.44%

We are likely to be in for a curious and volatile time as we move forward. With April seemingly off the table, we should probably have a "valley" of sorts for interest rates, or a kind of plateau at least, which may run for the next few weeks. Once we pass into May, the and June Fed meeting begins to loom larger in the windshield, markets may start to exhibit more nervous behavior, and mortgage rates may rise.

Between now and then we have several employment reports; if continued strong, and especially if there is any uptick in wage growth, rates will start to tend to the firmer. Should the downtrend in inflation level off or begin to reverse, rates would also tend to lift somewhat. Also, there are some hints of improving growth in the eurozone, and should this persist or accelerate it would also contribute to a bit of firmness for rates as money moves out of the safe haven of the U.S. in hopes of better returns.

A data-driven Fed and an unclear pattern for global growth are likely to leave us with more volatile markets overall. We don't think our present forecast ranges are in peril at the moment, but we could continue to experience mortgage pogo-sticking as we move forward. The ten-year Treasury yield, an important interest rate for mortgage pricing, fell by two-tenths of a percentage point from last Friday to this Wednesday, bounced up a bit and then fell back again. As such, we are likely looking at another easing in rates next week, at least early on, but there is a fair bit of data out, too, which may help to give us some pogoing for rates. Overall, call it a 3-4 basis point decline from here by the time we close business next Friday.

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".

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