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Mortgage Rate Trends: Weekly Market Trends & Forecast

HSH Market Trends
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Despite Solid Data, Rates Remain Tethered

September 5, 2014 -- Over the last couple of months, available economic signals from the U.S. continue to flash much more green than yellow. The economic storm in the first quarter of 2014 which produced a decline in GDP growth in the first quarter of the year continues to get smaller and smaller in the rearview mirror, and the road ahead increasingly appears dry and clear.

For most of the world (and of course the U.S.) this is good news, as American consumers are again needed to help lift the world out of a set of difficult straits. Faltering economies in the Eurozone and prospects for outright deflation led the European Central Bank this week to further trim the interest rates they control, and even charge banks more for parking funds with the financial authority. These changes are hoped to help incent more lending and promote both growth and firmer prices in the economies which share the Euro as a currency. However, the ECB stopped short of implementing any direct QE-style programs, but at least they are tweaking things around the edges to try to stimulate growth.

Weak growth and low yielding domestic investments have led investors to the U.S., where our bonds offer better returns and prospects for making money in equities may be better. This additional inbound demand for our bonds continues to serve mortgage borrowers well, as without it, the growing economy would surely be producing higher interest rates by 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 held fast this week, remaining at an average rate of 4.17 percent, a 2014 low. The FRMI's 15-year companion followed suit, holding an average rate of 3.43 percent for a fourth consecutive week; this is also a level achieved in six of the last eight weeks. Fully-insured FHA-backed 30-year FRMs also remained in stasis, as these lowest-priced fixed rate mortgages clung to an average rate of 3.91 percent yet again. In fact, the only wobble in rates of the most popular mortgage products was seen in the overall 5/1 Hybrid ARM, and this most-favored adjustable rate mortgage managed all of a single basis point move (.01%) to tick to 3.12 percent. All told, up and down the yield curve, mortgage rates continue to show remarkable stability.

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

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The Institute for Supply Management releases two reports each month, one covering the manufacturing sector of the economy and one covering the service sector. While these can travel divergent paths at times, there is no divergence at the moment, as both series are pointing to an economy on solid footing. In the ISM series, a value of 50 is neutral, with values above signaling rising activity, and below, contraction.

The ISM's manufacturing indicator rose by 1.9 points, landing at a value of 59.0 for August. This was the highest reading for the indicator since early 2001, and measures of productivity and new orders both remain in robust territory with values over 60. Even the employment indicator held at a firm 58.1, and the last couple of months suggest an acceleration in the factory sector.

The larger service side of the economy is also picking up steam. The value for the ISM's non-manufacturing report was a solid 59.6 for August, up 0.9 from July's already good level. New orders remained well over the 60 mark, and employment indicators strengthened too. The improvement shown here has been pretty steady over the last few months as well, and the ISM reports taken together show an economy in good shape. Forecasts at the moment put GDP growth at somewhat less than the 4.2 percent the economy managed in the second quarter, but present indications suggest that any falloff may be slight.

The economies of many of our trading partners remain subpar, but since the U.S. is a net importer of goods, more growth here can help to lift imports and help other countries' exports and growth prospects. In July, our imbalance of trade narrowed just a bit to $40.6 billion from $40.8 the month prior, as imports rose by $1.6 billion and exports by $1.8 billion, and firming growth here should help to firm growth "over there" to some degree, and the ECB move may enhance these trends somewhat.

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The Fed's latest survey of regional economic conditions (aka "the beige book") said that in the six weeks leading up through mid-August economic activity "expanded", even as there was "no distinct shift" in the trend for growth. Of course, coming off of a 4.2 percent GDP in the quarter ended in June, that is good news, even as certain aspects of the economy (such as residential real estate markets) remain uneven. Labor markets were said to be generally strengthening, too.

Buttressing the argument that labor markets are improving, announced layoffs dipped by about 15 percent on a month-to-month basis, according to the outplacement firm Challenger, Gray and Christmas. In August, 40,010 folks were headed out the door, good enough for the third lowest monthly number this year, and layoffs are holding at roughly precession levels.

That's essentially the same message to be taken from the initial unemployment claims report. During the week ending August 30, another 302,000 applications were filed at state offices, a figure consistent with the trends over the last few months and at about eight-year low levels.

Lesser firing doesn't necessarily mean more hiring, though. Other factors can influence the decision to add a worker to a payroll; most important is whether production goals can be met by squeezing more our of existing employees. In the first quarter of 2014, a 4.5 percent slump in output per worker may have presaged the recent spate of hiring, as more workers were need to meet demand. In the second quarter, productivity rebounded to a 2.3 percent rate, and this may be the proximate cause of new hiring slipping back since a 2014 peak of 304,000 new hires in April.

In August, only 142,000 new jobs were created, the lowest figure of the year to date (revisions may improve this figure, though). If workers hired in the second quarter are now up to speed and producing, it stands to reason that somewhat fewer new hires would take place in subsequent months, and that seems to be the case at the moment. Average hourly earnings moved 0.2 percent higher and are now running at a 2.5 percent clip, not yet inflationary, but indicative that higher wages seem to be starting to show. In different times, and coupled with the ISM and other data above, this might be seen as an inflationary cue, but with an unemployment rate still at 6.1 percent, and a workforce participation rate which ticked back to a rock-bottom 62.8 percent during the month, it's hard to argue that all the slack is gone from the labor force.

There is no doubt the degree of slack will be a topic of discussion among Fed governors and at the next FOMC meeting, but there's nothing yet to indicate that wage-led inflation is on the verge of a breakout.

More hiring early this year and credit available to almost anyone who wants it have fueled auto sales, which have returned to levels seen before the recession hit. According to AutoData, an annualized 17.5 million new cars and trucks moved off showroom floors and lots in August, the highest monthly rate since 2006. Unlike mortgage markets, which are suffering from new regulatory structures and no private securitization market to speak of (keeping any number of potential borrowers on the sidelines) subprime and near-prime lending have fully revived in auto financing, fostered by functioning private asset-backed securitization markets.

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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
  Aug 29 Aug 01 Aug 30
6-Mo. TCM 0.05% 0.06% 0.06%
1-Yr. TCM 0.11% 0.12% 0.13%
3-Yr. TCM 0.97% 1.00% 0.79%
5-Yr. TCM 1.66% 1.73% 1.60%
FHFA NMCR 4.09% 4.08% 3.55%
SAIF 11th District COF 0.676% 0.668% 0.954%
HSH Nat'l Avg. Offer Rate 4.17% 4.22% 4.68%

Construction spending flared higher in July, rising 1.8 percent for the month. Outlays for residential projects increased by 0.7 percent, those for commercial building by 2.1 percent and even spending for public-works projects kicked in, rising by 3 percent for the period.

Although not all facets of the economy have completely recovered from the last recession, it certainly seems as though the recovery is expanding deepening as we move along. These green light signals continue to argue for interest rates moving in an upward pattern, but the response in the market continues to be feeble at best, and Federal Reserve policy remains at near-emergency levels. Should the litany of good news continue to accumulate the Fed will soon no longer to be able to justify keeping rates at near-zero levels.

For the moment, though the pattern continues. Mortgage rates remain range bound, nearly flat and holding at about 2014 lows. That said, the market isn't completely immune to good news, and we're likely to see a few basis point increase in HSH's FRMI by the time next week comes to a close.

For a longer-range outlook for rates and the economy, one which will take you up until mid October, take a look at our new Two-Month Forecast.


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Daily FRMI ratesare available at HSH.com Check out our weekly Statistical Release here (and archives here).

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