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Mortgage Rate Trends: Weekly Market Commentary & Forecast

HSH Market Trends
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Mortgage Rates A Touch Firmer

July 15, 2016 -- Three weeks have passed since the "Brexit" vote, and financial markets have finally seemed to achieve some stability. Investors are finding at least some reasons to again be interested in the opportunity provided by "risk assets", propelling equity prices higher, and partially eschewing (at least for the moment) the safe havens of government-backed bonds. In turn, this modest shift in sentiment has seen yields rise a little bit in recent days, at least partially reversing the downward run of the last few weeks.

As they represent a differing level of risk and liquidity to investors than do Treasuries, mortgage rates don't get the same wash of cash from investors during times of trouble. As such, while the influential 10-year Treasury yield plumbed record depths in recent weeks, the decline in fixed mortgage rates has been less pronounced. For the week ending June 24, when the outcome of the Brexit vote was revealed, HSH's overall average for fixed-rate mortgages (our FRMI) closed the week at 3.66 percent; at it's low mark, in the week ending July 8, it had shed 14 basis points to finish the period at 3.52 percent. Frankly, we've had as much of a "plummet" in rates over comparable periods at least twice already this year.

Still, hovering close to 60+ year lows -- and at a time when economic growth appears to be adding a little bit of strength, not shedding it -- is remarkable. Even if things do go economically well this summer and mortgage rates do firm a bit, it will still take a significant change in market sentiment and Federal Reserve policy to see a return to 2016 highs. More likely, market stability and solid data will simply move us back toward the middle of this year's range for rates.

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 increased by two basis points to rise to 3.54 percent. The FRMI's 15-year companion remained unchanged at an average rate of 2.94 percent for the period. Popular with first-time homebuyers, rates on fully-insured FHA-backed 30-year FRMs remain a little below their Fannie and Freddie counterparts and also featured a two basis point lift, climbing to an average interest rate of 3.42 percent. Meanwhile, the overall 5/1 Hybrid ARM, more sensitive to any economic data and potential Fed policy shifts, added six one-hundredths of one percent to finish the week at 2.86 percent.

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

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For mortgage rates to try to get to new record lows, we'll likely need to see signs of economic faltering (here and elsewhere), either independently or as a result of the Brexit vote's effect on markets. That may yet occur, but there is little hard evidence as yet that Brexit has caused damage anywhere; conversely, at least in the U.S., the economic data has been quite resilient, enough so as to have markets again thinking that there is a reasonable chance that the Fed will make a move later this year. There of course is plenty of year yet to go and lots of opportunity for more volatile episodes, but if the U.S. economy can continue to chug along, that will become an increasing likelihood.

The Fed's latest survey of regional economic conditions, informally called the 'Beige Book", generally characterized growth across the country as modest to moderate, and noted that "the outlook was generally positive across broad segments of the economy, including retail sales, manufacturing and real estate", and that labor market conditions remained stable. All this information was gathered in the weeks leading up to July 1, and so the survey may not fully reflect any increase in nervousness about conditions in days after post-Brexit vote, but there didn't seem to by much concern expressed about the aftermath of the vote in the report.

Retail sales rose solidly in June, rising by 0.6 percent, a figure well above forecasts. That money is flowing about the economy is a good sign, with the pickup a comforting rebound after a strong April-to-May deceleration. Even removing expensive autos and fickle gasoline costs from the equation left a 0.7 percent rise, and the annualized measure of "core" sales rebounded to 4.7 percent year over year, matching the best figure of 2016 so far.

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Inflation remains on the Fed's mind when it comes to deciding how to adjust monetary policy. While the Fed's preferred measure of prices (a "core" Personal Consumption Expenditure (PCE) calculation) remains below the 2 percent level the central bank wants to see, other indicates of prices are flashing a bit more yellow and bear consideration as well. For example, as the U.S. is a net importer of goods, input price increases can come from beyond our shores, and in June, prices of imported goods rose by 0.2 percent. Certainly, that's not much of an increase, but import prices have now risen for four straight months after an eight month string of outright declines. Prices of items leaving these shores increased, too, rising by 0.8 percent in June and increasing for a third straight month. Although comparing this year versus last year's figure still shows lower costs now than then, the declines are becoming more shallow as we go.

Perhaps reflective of these changes, prices upstream of the consumer moved 0.5 percent higher in June. The Producer Price Index has also recently emerged from a period of declines and is starting to trend higher. So-called "core" PPI (a measure which leaves out the most volatile components and hopes to reveal the real trend in costs) was unchanged for the month, but the trend for both headline and core PPI is similar to the seen in import prices, that of a modest firming when compared against recent periods.

The modest firming in prices as measure at the consumer level happened a while back. Since then, we've had more or less steady prices, with core levels at or above 2 percent for eight months now. In June, the overall Consumer Price Index rose by 0.2 percent and is running at a 1.1 percent annual rate for a third consecutive month; "core" CPI also rose at a 0.2 percent clip for the month, but without the help of low energy prices is running at double the headline clip with a 2.2 percent rate. Regardless of the measure, it appears that prices are on a upward trend, if a mild one, and this trend will ultimately bring the Fed to a decision point -- but likely not until PCE passed the 2 percent line for at least a few months.

  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 Home Value Estimator

Industrial production moved higher in June. The 0.6 percent increase in output continued a four-month back-and-forth pattern for the indicator, which was driven higher in the latest month by gains in manufacturing and utility output. Quietly, and after a very rough period, mining production has picked up in the last two months, as the price of oil has found a perch around $50 per barrel, sufficient to get at least some activity going again. With the pickup in output, the amount of production floors in active use rose by 0.5 percent to 75.4 percent, a welcome increase even as this level remains well below historic norms or even levels that might contribute to price pressures.

Initial claims for unemployment assistance remained at a very low 354,000 in the week ending July 9. The level of new claims is running even below that seen last month, which would tend to indicate additional strengthening in the job market, but July's figures aren't as reliable an indicator, what with seasonal adjustments and auto-plant retooling and such. We'll know more about labor market conditions in the weeks ahead as the data becomes less suspect.

The broadest measure of stockpiles of unsold goods around the country showed a net expansion in May. The 0.2 percent increase in holding continues a modestly optimistic buildup of inventories after a period of decline. That said, manufacturers are still trimming their holdings to get them in better alignment with demand, a process that has been ongoing for almost a full year now. Wholesaling firms, those intermediaries between manufacturer and retailer have been net accumulators of goods for the past three months, and retailers have been accumulating at a modest pace, too. After a stretch of increasing, inventory levels relative to sales have leveled off and begun to decline, paving the way for more orders and adding a bit to economic growth.

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HSH's Statistical Release features charts and graphs
for eleven mortgage products, including Hybrid ARMs.
Our legacy state-by-state statistics are now here.
Current Adjustable Rate Mortgage (ARM) Indexes
Index For The Week Ending Year Ago
  Jul 08 Jun 10 Jul 10
6-Mo. TCM 0.36% 0.43% 0.08%
1-Yr. TCM 0.46% 0.59% 0.26%
3-Yr. TCM 0.69% 0.92% 0.96%
5-Yr. TCM 0.95% 1.22% 1.57%
FHFA NMCR 3.70% 3.75% 3.78%
SAIF 11th District COF 0.691% 0.690% 0.680%
HSH Nat'l Avg. Offer Rate 3.52% 3.68% 4.10%

Amid other troubles (some here, some abroad) the first measure of consumer moods since the Brexit vote does show rather a bit darker assessment of conditions and a more dour forecast, too. The preliminary July review of Consumer Sentiment shed four points to decline to 89.5 in the initial reading; should it hold, it will rival the low water mark for the year. Assessments of current conditions eased by just 2.1 points and remain in solid territory, but expectations for the future dropped by 5.3 points to 77.1, the lowest value of this component since September 2014. Surging stock markets may help move the needle higher when the final report comes around, but there are plenty of economic and political reasons to keep the pessimists busy, too.

Indications are that we ended the week on a flat note for interest rates. That said, it would not be a surprise that this was due to investors parking some funds out of harm's way for the weekend, with that demand for bonds sufficient to quell the small rise in rates. To the extent that this is the case, we will probably see some resumption of this week's slight uptrend early next week. That said, there is little significant fresh economic data due out to push markets around, so it could very well be a wandering week with some days up and some down. Absent unforeseen external forces, it seems likely that another basis point or two of increase may happen.

For a longer-range outlook for mortgage rates and the economy, one which will run through mid-July, have a look at our new Two-Month Forecast.

We just did our mid-year update to our 2016 outlook. This half-year review sees us update and discuss how our predictions are working out... some good, some not so good. Have a look!


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 balance 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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