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Mortgage Rate Trends: Weekly Market Trends & Forecast

HSH Market Trends
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October Surprise; Rates Drop, But Watch For Partial Rebound

New Two-Month Rate Forecast at HSH.com

October 17, 2014 -- If you got bored watching the almost-no-change, paint drying kind of market for interest rates over the summer, well, welcome back to more interesting times.

Volatility returned to the markets in full force this week; a true roller coaster rise for foreign and domestic stock markets, enormous swings in interest rates and at least temporary panic over the spread of the Ebola virus gave us plenty to observe and track. In the end, though, it would appear that at least a portion (perhaps a sizable portion) of the mortgage rate declines this week are being erased. It's incredibly difficult to execute a rate lock at any kind of the precise bottom for rates, especially in times of high volatility, and by Friday mortgage shoppers contacting lenders probably are wondering what all the "rates plummeting!" headlines are referring to, as the decline amounted to just about an eighth of a percentage point.

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 slumped by eleven basis points (0.11%), dropping to the 4.04 percent, its lowest average since the end of May 2013. The FRMI's 15-year companion shed a full tenth of a percentage point (0.10%), landing at an average 3.32 percent. Fully-insured FHA-backed 30-year FRMs declined by a dozen basis points to stop at an eye-catching 3.73 percent, as these lowest-priced fixed rate mortgages continue to be an attractive play. Finally, the overall 5/1 Hybrid ARM caved by a full fourteen basis points, falling to an average 3.02 percent, taking us back to last November's levels.

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

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Part of the Wednesday panic was actually data-related. A drop in retail sales in September made it appear as though the economy-driving American consumer was pulling back; a 0.3 percent drop in spending was recorded for the month. Slower sales of autos and lower gasoline costs pulled the headline number down but retail sales eased by just 0.1 percent without their influence. August's 0.6 percent gain in sales was outsized relative to the recent pattern, so perhaps September's slide is merely a pause as consumers refill savings accounts before the big holiday season gets underway.

Although the broadest available measure of inventory levels expanded by 0.2 percent in August, the aggregate measure of goods on hand relative to sales remained at 1.29 months for a sixth consecutive month. Holdings expanded mildly at manufacturers, ballooned a bit at wholesalers and contracted at retail establishments, who will now need to restock. All in all there is no overhang of stocks in the supply chain, so the goods train should keep chugging along.

The Federal Reserve released its latest review of regional economic conditions and found nothing to warrant much concern. The latest "Beige Book" covering the six-week period up to October 6 was essentially a repeat of the previous one, with "modest to moderate economic growth" reported across all 12 Federal Reserve districts. Residential construction was said to have become more "mixed" since the last report; by reference, the last report noted that activity measured here "generally expanded or held steady", so this might imply a slight weakening, if anything.

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A weakening was certainly evident in the latest sentiment index from the National Association of Home Builders. After a trend-distorting (and unexpected) upward pop in September, the Builder's index fell back to trend, shedding five points to slip to 54 in October. The measure of sales of single-family homes fell back to 57, also close to the recent pattern, as did traffic at showrooms and models, which ticked back to 41. Expectations for the future were tempered to a lesser degree, with the outlook for the next six months easing three points to 64. Despite the decline, activity remains solid and these readings remain among the best seen since 2006.

Construction of new homes moved 6.3 percent higher in September. Housing starts rose to a 1.017 million annualized rate during the month, with about a one percent rise in single-family starts (an annualized rate of 646,000 units) and a 16.7 percent jump in the always-erratic multifamily sector, which lifted to an annualized 394,000 starts. Permits for future building gained a little, rising 1.8 percent to 1.018 million units on an annualized basis, and with the September headline figure the third highest reading of 2014, there's no indication at the moment that that housing is faltering.

Also countering market concerns of economic weakness, Industrial Production rose by a full percent in September, a strong rebound from a soft August and about 2.5 times the expected gain. Manufacturing expanded by 0.5 percent, mining rose by 1.8 percent and utility output jumped by 3.9 percent during the month, while the measure of industrial and production floors in active use rose to 79.3 percent, the highest level since 2008.

Buttressing the argument against any impending economic slump, claims for initial unemployment benefits hit a 14-year low of just 264,000 in the week ending October 11. If the labor market continues to see low levels of layoffs and hiring above the 200,000 per month level the economy will continue to have legs, even if wobbly stock markets and struggling overseas economies may create drag.

Two local measures of manufacturing activity both showed continued expansion but at very different speeds. The Empire State Manufacturing Index from the Federal Reserve Bank of New York showed a deceleration after a strong six-month run, with their indicator showing a slump from September's 27.5 to October's 6.2 figure. New orders put in their weakest showing here since April, but employment measures still managed to improve during the month, if on a mixed basis, as more more hiring was reported but workweeks contracted. Perhaps we are at the stage of labor gains where it is more cost effective to hire new workers than to pay overtime, which might explain the "more workers but fewer hours" indication in the report.

Down the New Jersey Turnpike to the region covered by the Philadelphia Federal Reserve just a slight slowing in October was seen, with their general business conditions indicator falling 1.8 point to 20.7, a lesser decline than analysts expected to see. The measure of new orders here expanded, but like the New York report, employment was mixed, with a still-expanding workforce getting somewhat fewer hours.

Rising prices would play a role in increasing interest rates, if we only had any. Of late, concerns about slow growth and falling commodities prices have revived the disinflation/deflation conversation again, but suffice it to say for the moment that price gains remain below where the Fed would prefer to see them, and conditions suggest that this will continue to be the case for at least a while longer. The latest Producer Price Index covering September bears this out to a degree; after an "unchanged" August, prices declined during the month by 0.1 percent for the headline figure, and managed just a 0.2 percent rise when the most volatile components are removed from consideration. Headline PPI is now running at a 1.6 percent clip, and "core" PPI at 1.8 percent, with headline PPI inflation diminishing over the last six months while core continues a mild increasing pattern. We'll get a look at consumer-level prices for September next week, but the trend here is mild, if flat.

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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
  Oct 10 Sep 12 Oct 11
6-Mo. TCM 0.05% 0.05% 0.07%
1-Yr. TCM 0.10% 0.11% 0.14%
3-Yr. TCM 0.94% 1.06% 0.68%
5-Yr. TCM 1.61% 1.78% 1.43%
FHFA NMCR 4.08% 4.09% 4.01%
SAIF 11th District COF 0.667% 0.676% 0.954%
HSH Nat'l Avg. Offer Rate 4.15% 4.23% 4.42%

Not flat at all are consumer moods, at least those measured by the University of Michigan. The preliminary reading on Consumer Sentiment for October found greater happiness, as this indicator of moods rose by 1.8 points to its highest level in over seven years. Assessments of present conditions remained the same as in September, so the lift was all provided by growing optimism about the future. Concerns about inflation are waning, too, but that may be only an immediate reaction to sliding oil and gasoline prices.

Earlier this year in the MarketTrends we discussed the concept of "refinancing on the dips", a situation where you take advantage of brief declines in mortgage rates to get an opportunity for a rate which is temporarily below the trendline. That describes this week in a nutshell; rates were easing already when the week began (see last week's MarketTrends) but the decline this week intensified without warning, then faded like a summer thunderstorm. These kinds of occurrences are more commonplace during times of high volatility and can happen when overall rates are trending up or down.

There's no way to know when they will come and drop into your lap, so the best idea if you're looking to grab these chances is to follow mortgage rates on a more-than-casual basis, keep your paperwork in a handy and updated pile, and have a mortgage lender or broker at the ready. A note of caution, though: trying to time the actual bottom of rates is near impossible, and the best advice we can offer is if you find an offer that makes your deal work, take it. Even if you think there is more of a downside available, take it, and consider spending a few bucks on a float-down option. In all cases, though, take it. It may only be available for a few hours or days at most and will likely disappear just as fast is it came.

Mortgage rates are down this week, but after the storm, markets have calmed again. No one really knows what next week will bring, but as we write this it seems a fair bet that perhaps half or more of this week's dip will be gone next week, possibly all of it. We'll call for a mild rise of probably 5 basis points or so 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 December, take a look at our new Two-Month Forecast.


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

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