Mortgage Rate Trends: Weekly Market Trends & Forecast
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Going Nowhere Fast
November 21, 2014 -- After a pebble-in-a-pond moment or two back in September that created a small upward then downward wave for mortgage rates, markets have grown again increasingly still, much as they had been in the spring and summer months. Fortunately, and at least for the moment, rates remain below even those favorable levels.
Stability for rates is a very good thing, as it allows for home purchase plans to come to fruition without disturbing the process of borrower qualification. With a reasonable stability for rates, every month that progresses finds another potential homebuyer's credentials better aligning with the market, whether that comes from improving credit, greater funds for a downpayment or even just a sufficient period to meet documentation requirements. Absent unusual circumstances, we don't usually see great volatility in the forthcoming holiday period, so it's a reasonable expectation that the stability will persist for at least a little while longer yet. After that, things may get a little dicier.
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 a single basis point this week (0.01%) to ease to 4.09 percent. The FRMI's 15-year companion also saw an decrease of one basis points (0.01%), as this popular refinancing product edged down to 3.36 percent. Fully-insured FHA-backed 30-year FRMs followed suit, with a one basis point trim to last week's leaving the average at 3.78 percent, well below even conforming 30-year product. Finally, the overall 5/1 Hybrid ARM moved one basis point in the other direction, nudging back up to an average 3.10 percent for the week. As with last week, we remain just slightly above 2014 lows for all product, which are in near stasis at the moment.
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Minutes of the Federal Reserve's last policy meeting were released this week, and there was not much presented that we didn't already know. However, at least some participants in the policy discussions noted that "further pockets of turbulence were likely to arise as the start of [monetary] policy normalization approached." With a mid-2015 "liftoff" point likely, we may see more September-like fits and starts as we move through the early months of next year.
That said, it would seem more likely than not that any shock would send rates to the downside, given a lack of growth and inflation around the world; "Stimulus" attempts by other central banks are at least as likely to send investors here for shelter and better yields as they are to improve local economies, and any improvements to those economies from central bank policy actions would tend to happen slowly, if at all. The U.S. economy is doing what it can to lift the fortunes of the world, but there is plenty of drag and weight from issues beyond our shores to overcome.
As noted above, rates in a low, stable pattern are important, and this is reflected in the latest reports covering home sales. Although we won't see what happened in new home sales until next week, members of the National Association of Homebuilders reported improved conditions in November, with their headline Housing Market Index climbing 4 points to 58 for the month. Builders in the northeast reported above par conditions for the first time since 2006, joining the recovery. Measures of sales of single-family homes, expectations for the next six months and traffic in showrooms and model homes all picked up.
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That optimism is no doubt the result of firm construction activity. Housing starts in October were a little below September at 1.003 million annualized units started, but starts have been over 1 million annualized in three of the last four months, and single-family starts have been mostly on the upswing over that time. Permits for future building reported a fourth consecutive month over 1 million annualized (and seven of the last eight) so the new home market continues a slow but solidifying recovery.
The existing home market is much larger, of course, but the news there is pretty solid, too. In October, the annualized rate of existing home sales rose by 1.5 percent, edging up to a 5.26 million rate. This was the fifth consecutive month with a pace over 5 million, and the trend has been a positive one during a time of low and stable rates. The bump higher in sales trimmed available inventory 5.1 months, the tightest level since March, and the median price of existing homes sold is 5.5 percent above year ago levels, a little up from the summer months but more moderate than those seen at times over the last few years.
Interest rates would move higher if inflation could get any traction. At the moment, there are disinflationary forces at play, keeping a lid on price pressures for goods and services, while the still-improving labor market has yet to throw off any wage heat that might be a concern. The Producer Price index for October rose by 0.2 percent, a bit of a turnaround from a 0.1 percent decline in September. Prices for "core" goods actually declined by 0.1 percent for the month, but neither headline or core was of much accord, as headline PPI has increased by just 1.5 percent over the last year, while "core" is up 1.7 percent.
Mild cost increases upstream of consumers translate into mild increases in the price they see, as well. The Consumer Price Index were unchanged from September, bucking expectations of a small decline during the month. "Core" CPI rose by 0.2 percent, as this measure excludes energy and food costs; energy costs have been falling for four months, while food costs have only recently cooled. Over the past year, overall CPI is rising at a 1.7 percent clip, the same rate seen in the past two months, while core CPI is managing a mild 1.8 percent rate. The annual rate of both measures has declined since the summer months, a trend which may persist for a bit yet.
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|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|
We may start to see some warming in wages in the months ahead, should the pace of hiring and firing continue along current paths. The November hiring report is a couple of weeks away, but initial unemployment claims continue along a remarkable streak of low readings; for ninth consecutive week, new claims held below the 300,000 mark, coming in at 291K for the week ending November 15. With the holidays and seasonal adjustments kicking in it will be hard to get a clear reading on what's happening with layoffs, but we should have at least one more clear week to work with before that happens. Last year featured several considerable upward spikes in December before settling back to trend, but the broad economy was stalling as we closed 2013 and entered 2014.
Industrial Production was lackluster in October, sliding by 0.1 percent. Although manufacturing did manage an increase in output during the period, activity at mines and utilities both declined. With the decline in output came a decrease in the amount of production floors in active use, which backed down from a recovery high of 79.2 percent to 78.9 percent for the month, remaining below the level where bottlenecks in capacity might engender higher prices.
Three regional reports covering manufacturing activity all moved higher, some markedly so. The Federal Reserve Banks of New York and Philadelphia both reported November conditions in their respective districts; New York showed a mild gain, as their gauge rose by 4 points to land at 10.2 for the month. Orders bounced higher but employment metrics eased just a little. Just down the New Jersey Turnpike, the Philadelphia Fed's barometer rose by a stout 20.1 points, climbing up to a reading of 40.8 during the month, and continuing a upward string that began in February. The report also noted that orders and employment moved sharply higher during the month. Moving a little further west, the Kansas City Federal Reserve found just a slight gain in their indicator, which moved up three points to a value of 7 for the month, with orders about flat but at least muted employment gains.
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To the extent that the index of Leading Economic Indicators foretells the future, general economic activity should continue to perk up, too. The Conference Board's economic measuring tool rose by 0.9 percent in October, a nice gain after September's 0.7 percent rise. The LEI may better reflect the conditions in the month in which its components are gathered than look forward, but regardless of its precision, there does appear to be some economic momentum as we push our way deeper into the fourth quarter.
Collectively, the economic news from the U.S. is solid or solidifying. That's not much the case at the moment for economies around the world, and the European Central Bank and China's Central Bank are both making moves to try to help spur their economies into more inflation or faster growth or both. Meanwhile, the Fed is at the other end of the spectrum, having mostly exited stimulus measures and preparing to embark on a tightening campaign at some point. Economic activity and inflation (or a lack of one or both) will be the determining factor in terms of the Fed's timing, and depending upon the amount of drag the world exerts on the U.S., we may or may not see a policy change come mid-year, no matter how much the might might like to start moving us back to "normal."
A holiday-shortened week is on tap for next week, but there will be a bit of data to drive the markets before the break. We'll see reports from the Chicago Fed, an update for third-quarter GDP, Consumer Confidence and Sentiment, New Home Sales and more. Mortgage rates have mostly been following the path of least resistance of late (if there even is a path presently) and drifted lower. There seems to be little reason to expect that to change next week, but we could wander a few basis points in either direction.
While you're enjoying your Thanksgiving holiday, please do take a moment to remember those servicemembers who will spend the holiday far from family, home and hearth as they protect our interests in difficult spots around the globe.
For a longer-range outlook for rates and the economy, one which will take you up until mid December, take a look at our new Two-Month Forecast. To learn where we think the Federal Reserve will move interest rates in the years ahead, 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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