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Mortgage Rate Trends: Weekly Market Commentary & Forecast

HSH Market Trends
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Mortgage Rate Decline Due

November 16, 2018 -- As is often the case, a confluence of events is serving to exert some downward pressure on interest rates. Of course, all the factors that have propped them up this fall largely remain in place, at least domestically, but signals that other major economies are faltering a bit of late has curtailed upward momentum.

The latest quarterly growth figures from Japan, Germany and China all were rather below par, so it appears on a broad-brush basis that economic growth is trending at a softer rate despite solid growth in the U.S. Of course, there are some early signals that growth is stepping back a bit here, as well; at the mid-point of the fourth quarter (and acknowledging there is a lot of inbound data to come), the Atlanta Federal Reserve's GDPNow tracker suggests a current 2.8% rate of growth. While still solid, above the economy's "potential" and likely sufficient for the Fed to make a move in December, it would nonetheless be a meaningful deceleration from levels attained in the previous two quarters.

There are other contributing factors for mortgage rates to slide a little, too. Although kicking a little higher in the last couple of days, oil prices have essentially declined for the last six weeks, closing in on 2018 lows and suggesting that future inflation will be lessened to some degree. As well, adding to recent moves by investors to escape wobbly stock markets and flee into bonds comes a very rocky time for the Brexit process, where a working deal seems have been struck but at perhaps a high political cost, and amid the turmoil, investors have become unnerved by the prospects. Such stresses often see investors turn to U.S. Treasuries for safety and security, enhancing a decline in yields.

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Collectively, slower global growth, much lower oil prices and a messy political situation somewhere other than here in the U.S. are all contributing to a decline in influential Treasury yields. Mortgage rates aren't moving downward with the same velocity, but they are moving downward at the moment.

With mortgage rates generally moving higher throughout 2018 and mortgage demand flagging, it's to be expected that we would see some loosening at the underwriting margins for mortgages as lenders try to keep potential borrowers coming in the doors. According to the most recent Survey Loan Officer Opinion Survey from the Federal Reserve, better than 11% of the banks that participated in the third-quarter survey reported somewhat easier standards for borrowers looking for mortgages backed by Fannie Mae or Freddie Mac. As well, some 12 percent also said they had lowered barriers for government-backed (FHA, VA, USDA) mortgages. This comes on top of 15% (GSE-backed) and 7% (gov't-backed loans) who reported easing in the second quarter... and well above the 5% and 2% who reported easing in the first quarter.

Any such changes are likely small, and probably incremental. For example, it may be that lenders are reducing so-called "overlays" by accepting lower credit scores for some borrowers, or may be entertaining borrowers with higher debt-to-income ratios or making loans to certain self-employed borrowers, such as doctors or lawyers. These changes don't seem to be having much effect overall, though, as the Mortgage Bankers Association reported declining applications for mortgages again in the week ending November 9. Declines have been tallied here in 5 of the last 6 weeks and applications are at about a four-year low. If declines continue (and the impending holidays are already a typically slow time), we'll soon find ourselves at 15-plus year lows.

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We'll not know for some time any effect on inflation from the oil price slide, and some of that will depend on how long lower prices remain. Presently, inflation is still firming a bit; the latest review of inflation as measured by the Consumer Price Index found a 0.3% rise in October, the largest "headline" bump since January. Core CPI, a measure that excludes items such as gasoline and food due to their volatile natures edged just 0.2% higher for the month, a slight firming over readings seen in August and September. Over the last year, overall CPI has increased by 2.5%, about in the middle of a recent range, while core CPI is running at 2.2%, as it has in five of the last six months.

After a couple of declines in the early to mid summer, goods coming into the U.S. have seen a rebound in cost, as import prices flared higher again in October, increasing by 0.5%. It's not clear to what extent increased tariffs are influencing these costs, but with more slated to kick in soon, odds favor that this influence will increase. Import prices are now increasing at a fairly moderate 3.5% annual rate. Conversely, prices of goods headed away from these shore rose at a 0.4% clip in October, also rebounding after several soft months, and export costs are now rising at a 3.1% rate. Certainly, there are firm price pressures to be seen here, but little sign of any acceleration.

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   Mortgage data:Today's Mortgage RatesHistorical Mortgage RatesReverse Mortgage Rates
   Calculators:Downpayment DecisionerTri-Refinance CalculatorPMI Cost Calculator
   Resources:Housing & Salary StudyARM Index DataHome Value Estimator

After a couple of disappointing months, consumers re-opened their wallets and powered retail sales to a 0.8% increase for October. To be fair, a big influence in the total was rising gasoline prices (since collapsing) but even without these and autos figured into the total, sales still rose by a nice 0.3%, the strongest boost since July. Retail sales are a little cooler than earlier in the year, when income gains from tax withholding changes first kicked in, but retailers are hopeful that the trend continues into the all-important holiday season. So-called "Black Friday" for retailers comes next week, starting the season, which has an extra week this year due to an early Thanksgiving.

Three local reviews of manufacturing activity that are often spread over a couple of week period each month all came out this week, with reports from the Federal Reserve Banks of New York, Philadelphia and Kansas City all being released. In New York, overall activity increased a bit, with the local barometer adding 2.2 points for November; a slight decline in new orders was offset by gains in employment and inventory levels. Just next door, the Philly Fed reported a more meaningful decline in activity, with a 9.3-point fall dropping the meter to 12.9 for the month, a bit of a stall after two strong months. New orders dropped measurably to a much more modest rate, and employment metrics eased a bit as well. Out in the 10th Fed district, the KC Fed reported a bound higher for factory activity, as their gauge moved up by 7 points to 15 for the month, powered by a spurt of new orders even as employment gains remained muted. The monthly national review from the ISM isn't due for several weeks yet, but it looks as though manufacturing is in for another solid month.

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October saw Industrial Production edge higher by 0.1%. Increases here have been harder to come by in the last few months after some strong gains in the late spring and early summer. Manufacturing is doing its part, though, posting a 0.3% increase in output, making it 5 consecutive months of adding to the total. Mining output failed to keep pace with a 0.3% decline for the month, a second consecutive slip. That was also the case with utility output, where a 0.5% decline in October came on the heels of a 0.1% drop in September. The overall percentage of production floors in active use eased a tenth of a percentage point, drifting to 78.4%. While certainly better than levels seen in the recession and early stages of the recovery, there remains quite a bit of available capacity before inflation-enhancing production bottlenecks might form.

In last week's MarketTrends, we discussed the filling, leveling and backing pattern for mortgage rates in recent months. Increases and decreases have generally occurred for disparate reasons ranging from a lack of specific direction from the Fed to fiscal crises in Latin American economies. There's just no telling what will come at any time or even next; however, each emergent item typically first spooks the market, prompting defensive reaction, followed by evaluation, and then in many cases a combination of acceptance or even dismissal. Interest rates are of course influenced by these behaviors; an initial rate spike (or decline, depending upon the external stimulus) followed by reassessment, where rates tend to stabilize, followed by resumption or refutation of the trend in place. Odds favor that the current cycle of this -- mortgage rates moved higher several weeks ago, then leveled off for a couple of weeks, and are now poised to fall -- will then see a return to the pattern previously in place, where firmer interest rates are the order of the day. We may need to wait a week or two for that.

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Current Adjustable Rate Mortgage (ARM) Indexes
IndexFor The Week EndingYear Ago
 Nov 09Oct 12Nov 10
6-Mo. TCM2.52%2.45%1.34%
1-Yr. TCM2.73%2.66%1.52%
3-Yr. TCM3.02%2.96%1.76%
5-Yr. TCM3.06%3.03%2.01%
10-Yr. TCM3.21%3.18%2.34%
FHFA NMCR4.62%4.63%4.05%
FHLB 11th District COF1.018%1.015%0.732%
Freddie Mac 30-yr FRM4.94%4.85%3.90%
Historical ARM Index Data

Next week, though, mortgage rates are poised to decline. It is an abbreviated week for many, what with the typical Wednesday "get away" day for the Thursday Thanksgiving holiday, and many companies are closed come Friday, too. Based on how this week ended, it looks to us as though we could see a meaningful decline next week, but the Thanksgiving holiday will likely dull the message. Come next Wednesday, we think that Freddie Mac will report a 7 basis point or so decline in the average offered rate for a conforming 30-year fixed.

We'd like to extend a very Happy Thanksgiving to all. As you gather with family and friends, please take time to thank and remember those in the Armed Forces who are far from their homes this holiday.

For an outlook for mortgage rates that carries almost to the turn of 2019, check out our latest Two-Month Forecast.

You might also take a minute to have a have a look at our mid-year review of our 2018 Outlook. Back in December 2017, we looked out over the year and provided some thoughts and expectations for a wide range of housing and economic topics, and included a long-range forecast for mortgage rates. It's hard to think that we'll be looking to 2019 in just a few short months.


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 Calculator to learn exactly when you will no longer have a mortgage balance greater than the value of your home.

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