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Mortgage Rate Trends: Weekly Market Trends & Forecast

HSH Market Trends
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Rates Ease A Little, May Slip More

New Two-Month Rate Forecast at HSH.com

August 15, 2014 -- The summer of stability for mortgage rates continued this week, with few signs that the flat pattern which has persisted for months will change significantly anytime soon.

The nation's rising economic output has encouraged the Federal Reserve to slowly end their program of Quantitative Easing, where they have accumulated trillions of dollars of Treasuries and Mortgage-Backed Securities. A firming economy coupled with a less-accommodative Fed and accompanied by a very robust stock market would typically see interest rates running firmer than not, but various and emerging issues around the world have damped every potential uptick. A hot flare of escalation in the Russia/Ukraine troubles at week's end fostered a fresh rush to safety in U.S. bonds; it if holds, we may see slight dip in the flat pattern for mortgage rates next week as a result.

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 decreased by three basis points (0.03%) sliding back to 4.20 percent. The FRMI's 15-year companion managed a four basis point fall, dropping down to an average rate of 3.43 percent. Like their FRMI counterpart, popular FHA-backed 30-year FRMs saw a three point decline, easing to 3.90 percent, as these fully-insured offerings continue to beat conforming 30-year FRMs by almost a quarter percentage point. Finally, the overall 5/1 Hybrid ARM was the only laggard, holding steady and closing HSH's survey week at 3.12 percent again, a value achieved in four of the last six weeks.

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

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Although the tenor of economic news this spring and summer has been broadly positive, we do see occasional flat spots in the data, prompting some disappointment about the strength of the recovery. One such report this week was Retail Sales, which managed no change at all in July, falling short of forecasts. Discounting of autos trimmed the top line number, but the 0.1 percent change when they are removed is still rather weak, if at least positive for the month. Consumers have been wary in adding to credit card balances throughout this recovery, and this in turn can hinder or delay sales, as it takes longer to save cash then it does to "put it on plastic." This time period of cash accumulation may also be extended by meager growth in wages in incomes, too, and in this environment, retail sales have risen only 3.7 percent over the past year.

In time, we'll expect to see the labor market heal to a point where more reliable wage growth is commonplace. According to the Bureau of Labor Statistics, the number of job openings in June (the latest month available) was the highest such figure since March of 2007, so opportunities for employment are on the upswing. Layoffs have largely flattened out, too, with initial unemployment claims hanging around either side of 300,000 per week for the last few months, with occasional flares both above and below. In the week ending August 9, we rose above, with 311,000 new applications for benefits filed; the week prior, we had a 290,000 number, so splitting the difference leaves us right in the middle. Regardless, the August 9 number was the highest since the last week of June.

If HSH's weekly MarketTrends newsletter is the only way you know HSH, you need to come back and check out HSH.com from time to time. You'll find new and changing content on a regular basis, unique calculators, useful insight, articles and mortgage resources unlike anywhere else on the web.

Although many measures of prices are running a little stronger of late, there doesn't seem to be any kind of regular or continuing upward momentum, and the latest indicators in this regard showed very mild readings. In July, prices of imported goods coming onto these shores declined by 0.2 percent, erasing a 0.1 percent life in June and then some. Sliding prices for petroleum products dragged the headline down, but import prices were still unchanged when they were excluded from the tally. Costs of imported goods have risen a scant 0.8 percent over the last year, and we're not exporting any inflationary pressures, either. Goods leaving the U.S. for other places had no aggregate increase in cost from the month prior, and have had a cumulative increase of just 0.4 percent over the past 12 months.

A lack of inflation affords the Federal Reserve plenty of leeway in making changes to monetary policy, helping to keep interest rates lower for longer.

With lower prices coming in, the nation's producers of goods have less inflation to pass downstream. The latest Producer Price Index covering July found just a 0.1 percent lift in costs, about a third of what was expected and a deceleration from June's 0.4 percent rise. So-called "core" PPI (a measure which excludes the most volatile components) moved up a little more with a 0.2 percent rise for the month. "Headline" PPI is now running at a 1.7 percent annual rate; core PPI is holding a 1.6 percent pace. Although the Fed prefers different price indicators than the PPI or CPI, all measures will track one another more or less, and the trend remains mostly moderate.

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This week's one available barometer of manufacturing strength eased a bit in August. The New York Federal Reserve Bank's Empire State Manufacturing Survey backed down from a four-year high reading in July to land at a still-solid 14.17 for the month. Orders were fairly level, as were employment metrics noted in the report, and most other indicators of factory activity have been pretty strong of late.

Cumulative inventory levels across manufacturers, wholesalers and retailers remain fairly steady, rising by 0.4 percent in July. Manufacturers trimmed their holdings a bit while retail establishments expanded them, and wholesale firms remained balanced during the month. As sales have largely kept pace, ratios of goods-on-hand have remained steady, so the production chain and the larger economy seem to be likely to continue forward in at least a measured pace.

Industrial Production rose by 0.4 percent in July, a little stronger than was forecast and a match for June's gain. In this report, manufacturing gains of 1 percent pushed the headline higher, as did contributions from the mining sector, which managed a 0.3 percent gain. Oddly, for the fifth time in the last six months, utility output declined, falling by 3.4 percent during the month. Although a fairly cool summer has reduced demand for air conditioning, it could simply be that combinations of greater efficiency and attempts to trim recurring costs by consumers are contributing to lessened demand, too.

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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 08 Jul 11 Aug 09
6-Mo. TCM 0.05% 0.06% 0.08%
1-Yr. TCM 0.11% 0.11% 0.12%
3-Yr. TCM 0.92% 0.96% 0.61%
5-Yr. TCM 1.64% 1.69% 1.38%
FHFA NMCR 4.08% 4.18% 3.40%
SAIF 11th District COF 0.668% 0.667% 0.951%
HSH Nat'l Avg. Offer Rate 4.23% 4.24% 4.58%

Although the economy is performing better overall, consumers remain very concerned about prospects for the future -- at least that's the takeaway message from the preliminary reading of Consumer Sentiment from the University of Michigan survey of consumers. The UMich indicator lost ground in early August, easing 2.6 points to 79.2, its lowest level since last October. Assessments of current conditions improved but there was a marked downturn in the outlook for future prospects.

American mortgage rates continue to be more affected by global instability than by the domestic economy. Global and domestic investors alike continue to find plenty of reasons to pour money into the safety of U.S. Treasury offerings, perhaps moreso as sovereign bonds from other nations may offer relative safety (but yield close to nothing) or are risky and yield only about what you can earn here (and would prove much less liquid in a time of crisis). Even though our yields are low, these may be the best deal in town, all things considered, and with the world's political and economic troubles unabated, we can expect to continue to see this influence for some time yet.

Given the end of week drama in Ukraine, rates will at least begin next week on a downward note. Low mortgage rates have proven only somewhat beneficial to reviving housing markets, and we'll get some July data in that regard in reports from the home builders trade group, as well as a look at housing starts and building permits and existing home sales. For interesting reading, the markets will get a glimpse of the minutes of the last Fed meeting, and we'll see a few other items by which to reckon things, as well. Slightly lower rates seem likely to be on tap for next week, with a 3-5 basis point slide in the offing. For a longer timeline, well, you'll need to have a read through our new two-month forecast.

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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