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Mortgage Rate Trends: Weekly Market Commentary & Forecast

HSH Market Trends
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Fed Shadow Passes, Rates To Ease Again

April 29, 2016 -- Although we are certainly in an age of transparent central banking, not one really knows what the Fed will do at any point. It's not even clear if FOMC members come into meetings with their minds made up or have a fully-developed sense of where the economy and monetary policy will go or develop those as they exchange ideas with peers at each policy meeting.

That said, it's not all that hard to be able to discern the big moves -- a rate change, the expansion or termination of a support program, etc. -- but more subtle changes to posture and language bear thoughtful consideration. This week, as expected, the Fed met and concluded its meeting with no change to the federal funds rate and no specific indication that a move to short-term rates is imminent. Without clarity, markets will be left to sift through the data that comes over the next six weeks an ascribe ever-changing probabilities for a move in rates.

Even as the Fed may have made a suggestion that it is more comfortable with the economic situation than back in March, that it didn't more clearly or forcefully signal a forthcoming move allowed interest rates to begin to back down as the week closed. For the moment, though, we did finish this week on a more elevated note, but that probably won't hold.

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 rose by eight basis points (.08 percent), bumping upward to an average rate of 3.76 percent. The FRMI's 15-year companion didn't follow in lockstep, but instead added five basis points to last week's final figure to edge up to an average 3.12 percent. Popular with first-time homebuyers, rates on fully-insured FHA-backed 30-year FRMs remain considerably below their Fannie and Freddie counterparts and increased by just four basis points, firming to an average interest rate of 3.56 percent. Meanwhile, the overall 5/1 Hybrid ARM increased by five one-hundredths of one percent to climb to 2.97 percent for the week.

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

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The Fed meeting closed with at least one oblique clue in that, back in March, the Fed noted that "global economic and financial development continue to pose risks" to growth and inflation here. The April statement omitted the clause; we take this to mean that the more stable financial market climate since the last meeting, should it persist for a while, may give the Fed sufficient space to lift rates as early as June, but possibly a little further down the road than that.

The chances of this would increase if the U.S. economy can repeat the pattern of the last couple of years, where a lousy first quarter is followed by a strong period or two. In 2015, for example, the measure of Gross Domestic Product rose from a paltry 0.6 percent in the first quarter to a fat 3.9 percent in the second. So far, this year is playing into the pattern; GDP rose a lackluster 0.5 percent in the first quarter of 2016. As with the last two times we saw this, questions have been raised as to whether there are some bad seasonal adjustments that are producing the pattern, but to be fair, there have been few indicators sporting outsized strength in the first three months of the year to suggest that the figure is a statistical anomaly. That said, should April-May-June indicators warm this year as they did in the last two such periods, the Fed may not resist the chance to make a move.

Housing has been a brightish spot for the economy. Home sales have been pretty fair, if rangebound, and ever-escalating home prices continue to fill in equity holes and may eventually lead to some "wealth effect" spending by consumers. Sales of new homes eased a touch in March, slipping by 1.5 percent to a 511,000 annual pace. Unlike existing homes, where inventory levels are very thin, the supply of new homes is about 5.8 months at the present rate of sale, fairly close to normal. Inventories of unsold homes continue a slow, steady march higher and now stand at an expansion-high 241,000 units available.

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Personal incomes picked up by 0.4 percent in March. The figure was better than was was expected, and a nice rebound after a meager 0.1 percent gain in February; Wage growth drove the headline increase with a 0.4 percent gain. Conversely, personal consumption expenditures rose a scant 0.1 percent during the month, so folks apparently banked more dollars, lifting the nation's rate of saving to 5.4 percent. During the recovery and expansion, a buildup of savings has been followed on a number of occasions by a stronger period of spending. Perhaps we'll see that as we wend our way deeper into the second quarter.

Of course, banking more funds may also be a hedge against expectations of a more difficult future, too. Consumer moods have lacked much by way of traction for months, and the latest reviews of them don't suggest a huge upswing in optimism. The Conference Board's measure of consumer confidence dipped by 1.9 points to 94.2 in April, still within a range that has persisted for about six months now. Optimism about the current climate did brighten a bit, but those covering expectations for the future darkened somewhat.

That was much the case in the final April review of consumer sentiment from the University of Michigan. Their barometer also declined for the period, easing by two points to a value of 89. Like the confidence index above, current conditions were judged to be improving somewhat, but there was more of a sense of foreboding about days yet to come, dragging the index lower. Perhaps the ongoing drumbeat of the election season is weighing on moods; we'll see if that's the case as we go, and there are still many months to go until questions about candidates are fully answered.

  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

As is often the case, new orders for durable goods tend to slump one month then rise the next. This pattern is a familiar one, and one that has been more or less in place for a good while. After a 3.1 percent slump in February, orders for goods intended to last longer than three years rebounded in March to rise by 0.8 percent. The gains were driven by transportation-related spending, with weakness evident beyond that view. The report's proxy for business related spending was flat for the month, which was still an improvement over February's decline, if not much to get excited about. Manufacturers are still having a pretty tough time of it, but things have been gradually getting better.

Some of this improvement can be seen in two local reports from regional Federal Reserve Banks. While we'll get the more comprehensive Institute for Supply Management reports next week, The Richmond and Kansas City Federal Reserve Banks chimed in with local data for their districts. Richmond's gauge eased back from a very strong 22 in March to 14 in April, but that was still good enough for the best back-to-back pairing since December 2010 and January 2011. Out in the heartlands, the Kansas City Fed's marker remained in negative territory, but less so, landing at minus 4 for the April as part of a two month upswing. The KC measure hasn't been in the black for over a year's time, but perhaps is working its way in that direction.

New unemployment claims continue their remarkable low string, even it they aren't posting 43-year lows every week. In the week ending April 23, just 257,000 new applications for assistance were filed, up from that 43-year low the week prior, but certainly holding in a place that suggests another very solid jobs report will come when the April employment report is released next Friday.

Employees on books cost employers 0.6 percent more in the first quarter of 2016 than in the last one of 2015, according to the quarterly Employment Cost Index. The ECI covers the total costs of keeping a hire on board, covering both salaries and benefit costs. Salaries rose by 0.7 percent, the strongest such gain in a year's time, while benefit costs edged down to a 0.5 percent increase from 0.6 previously. With the wage gains in the personal income report and the ECI release both ticking a little higher, we'd be surprised if an eyebrow or two wasn't raised at the Fed in response.

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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
  Apr 22 Mar 25 Apr 24
6-Mo. TCM 0.36% 0.46% 0.10%
1-Yr. TCM 0.54% 0.64% 0.24%
3-Yr. TCM 0.96% 1.05% 0.87%
5-Yr. TCM 1.31% 1.39% 1.36%
FHFA NMCR 3.73% 3.88% 3.77%
SAIF 11th District COF 0.670% 0.664% 0.698%
HSH Nat'l Avg. Offer Rate 3.68% 3.80% 3.78%

Fed shadow passed, mortgage rates will go back to wandering with the data. With the removal of the discussion of "risks" in the Fed statement, there was a little increase in the odds of a move at the June meeting, but the probability of such an action is still low... for now. If nothing else, the language change suggests that we probably don't see a full retreat of the minor increase in interest rates that happened over the last week or so, but we are likely to settle back somewhat again.

If the pattern of stronger data seen in the second quarter of the last couple of years starts to show a repeat, probabilities of a Fed move and mortgage rates will both begin to increase somewhat. The U.S. economy would probably have little issue managing another small rise in rates if and when it comes, but given the global market spasm which occurred in the wake of the last one, it's not clear at the moment if the world can handle it. The next six weeks will reveal a lot in that regard, but for the moment, that's tomorrow's worry.

The calendar turns to May next week with the usual cascade of data. The ISM reports, worker productivity, vehicle sales, lending conditions, consumer credit trends and the employment report are all on tap. This will be the first look to see if things are picking up to start the second quarter, and if so, mortgage rates probably can't ease too much. We'll call it a decline of perhaps three basis points in HSH's FRMI by the time the week is through.

For a longer-range outlook for mortgage rates and the economy, one which will run through mid-May, have a look at our new Two-Month Forecast. If you're wondering where we'll go after that, you might have a look at our 2016 outlook.

For a really long-range outlook, you'll want to 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 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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