HSH Market Trends

May 11, 2012 — Mortgage rates moved a little further into record territory this week. Unless a spate of solid economic news should show, there’s little reason to expect any strong reversal of the trend of small declines which has run for seven weeks now. However, as the data hasn’t been exactly bleak, even a handful of decent reports would be sufficient to reverse the trend.

For now, we should just sit back and enjoy the ride.

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 eased by three basis points (0.03%) for the week, and at 4.12%, now stands at a new record low. The FRMI’s 15-year companion shed four basis points (0.04%), slipping to a new record low of 3.35%. Important to homebuyers and low-equity-stake refinancers, already-low FHA-backed 30-year mortgages fell by another two basis points to 3.77%, while the overall average rate for 5/1 Hybrid ARMs was down three basis points (0.03%), and finished at 2.94% for the survey period.

See this week’s Statistical Release and Trend Graphs.

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With rates down, perhaps homebuying will again pick up. The warm winter months seem to have “advanced” some sales from this spring, but fresh lows for mortgage rates are just the thing to get homebuyers to come back into the market.

Consumers are again borrowing money, a fairly healthy sign for the economy in general. Consumer loan balances expanded by a fat $21.4 billion dollars in March, with the lion’s share of the increase being spent on student and auto loans. There is a looming July deadline where interest rates on federally subsidized loans are slated to increase significantly, and the increase here may be related to some students locking in lower rates. That said, there was also an increase in revolving debt, with credit card borrowing increasing by $5.2B. This may have been driven to a degree by higher gasoline prices during the month.

It’s hard to tell if consumers are actually getting happier or not, as available indicators are sending mixed signals at best. The Bloomberg Consumer Comfort Index continued a downward slide, landing at a minus 40.4 reading for the week ending May 6, the third consecutive decline after rising to four-year highs. On the other side of the coin is the University of Michigan Survey of Consumer Sentiment, which moved upward to a value of 77.8 in the initial May report. This would be a four year high if it holds for the entire month.

Happiness is no doubt influenced by the presence of a job. Weekly unemployment claims had bounced higher in early April, but have begun to settle back as of late. During the week ending May 4, some 367,000 new applications for benefits were processed, almost unchanged from the week prior and a sign that the job market may again be starting to improve. April’s employment report was quite weak, but upward revisions to earlier 2012 data revealed a pretty solid footing for hiring. April may simply be a pause, but we won’t know for sure for several weeks yet.

The Federal Reserve is obviously following the changes in the economy very closely, since their present program of support comes to a close in about six weeks. One of the keys to deciding whether or not to continue support is whether or not the work they’ve already done is fostering more inflation than they expect. Fed Chairman Bernanke has noted that he believed that the effect of higher energy costs will prove transient, and the Fed will likely be encouraged by the most recent data on prices.

Prices of imported goods declined by 0.5% in April. That followed a March report of a 1.5% increase, and so the present trend is a downward one. Over the past year, imported goods have risen by just 0.5%, a fairly tame reading. Goods leaving these shores carried price tags 0.4% higher, but that too was a decline from March, and stuff headed to our trading partners has seen just a 0.7% increase over the past twelve months.

Since we bring in so much to the US, that can have a ripple effect; as such it was not too surprising that the Producer Price Index slipped by 0.2% in April. That came on the heels of an unchanged report in March, and PPI increases now total a rise of just 1.9% over the past year. Peeling back the headline figure, though, reveals a little more price pressure, with the “core” PPI rising by 0.2% and sporting a 2.8% clip over the last four quarters. Inflation isn’t dead, but appears to be on a flat-to-declining trajectory at the moment, and that should please the Fed.

The goods we are producing or bringing in aren’t building up to any great degree. Wholesalers reported that their inventories rose by 0.3% in March, about half the expected increase. That said, sales remained firm and the ratio of goods on hand relative to demand held at 1.2 months of supply. This should ensure a steady flow of orders to factories, keeping the economy moving forward as we wend our way toward summer.

Our Statistical Release features charts and graphs for 11 products, including Hybrid ARMs. Our state-by-state statistics are now here. Current Adjustable Rate Mortgage (ARM) Indexes Index For the Week Ending Previous Year May 04 Apr 06 May 06 6-Mo. TCM 0.15% 0.14% 0.08% 1-Yr. TCM 0.19% 0.19% 0.20% 3-Yr. TCM 0.39% 0.51% 0.99% 5-Yr. TCM 0.82% 1.02% 1.92% FHFB NMCR 3.90% 4.08% 4.79% SAIF 11th Dist. COF 1.163% 1.206% 1.469% HSH Nat’l Avg. Offer Rate 4.15% 4.30% 4.99%

Low rates, moderating inflation and economic news suggests we will have a chance to improve on the 2.2% rise in GDP for the first quarter of 2012. While things could of course be better, we are in a relative sweet spot for mortgages; more growth or more inflation would cause them to rise to a degree. That said, without more growth, it will remain hard for many people — even those with jobs — to take full advantage of them, be it by buying a home or refinancing one. It’s not quite a Catch-22; slightly stronger growth and an improving labor market would probably only push us up from record lows to merely unbelievable levels, so any “damage” from such a rise would be minor at best.

Next week brings a busier calendar in terms of economic data. We’ll get a look at Consumer Inflation and Retail Sales to see if spending is continuing to grow, we’ll see if April housing starts and permits made builders any more optimistic in May, review Leading Economic Indicators and get a clearer sense of what the Fed is thinking when the minutes of the last meeting are revealed. It seems to us that modest improvement will be the general tone all around, and mortgage rates hold steady for the week.

For an longer-range outlook for rates and the economy, one which will take you up until late June, have a look at our new Two-Month Forecast.

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Like HARP 2.0? We think we have a better plan… for over a year now!
Have a look at our idea — read about HSH.com’s Value Gap Refinance concept, and be sure to let us know what you think.

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These are the latest HSH National Interest Rate Benchmarks produced from HSH’s weekly editorial survey of mortgage lenders across the US. Click here for more information. We have long-term statistical sets, too.

Source: HSHAssociates.com, Pompton Plains NJ
1-800-UPDATES   Compile Date: 05/11/2012   ©2012 HSH Associates

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May 4, 2012 — Following the softer tone of the economy, mortgage rates eased downward this week to again land at new record lows. After a hopeful late winter and early spring, the economic data began to point to a lower trajectory for growth, and that’s where we find ourselves at the moment. Troubles in overseas economies continues to show, while inflation has leveled for the moment. These ingredients are the recipe for lower interest rates in general, as investors look for places to stash and park cash away from uncertain stock markets. Once you mix in a Federal Reserve still accumulating long-term Treasuries and mortgages, you’ve got everything you need for rock-bottom mortgage rates.

It would be better if more borrowers could take advantage of them, though.

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 eased by two basis points (0.02%) for the week, and at 4.15%, now stands at a new record low, the third record-setting week of 2012. The FRMI’s 15-year companion also shed two basis points (.02%), slipping to a new record low of 3.39%. Important to homebuyers and low-equity-stake refinancers, already-low FHA-backed 30-year mortgages dropped by another single basis point to 3.79%, a fresh low-water mark, while the overall average for 5/1 Hybrid ARMs was unchanged, holding at an average 2.97% for the survey period, its lowest level ever.

See this week’s Statistical Release and Trend Graphs.

Want to get Market Trends as soon as it’s published on Friday? Get it via email — subscribe here!

The latest Senior Loan Officer survey of lending conditions from the Federal Reserve was released this week. Since the mortgage market is substantially controlled by the underwriting guidelines of Fannie Mae, Freddie Mac and the HUD’s FHA program, it was unsurprising that there was little change in the standards for obtaining a residential mortgage. Over the past three months, demand for loans was up slightly (record low mortgage rates at times will tend to have that effect).

In a special question, the Fed asked lenders to compare their willingness to make a mortgage to borrowers in 2006 and 2012 using similar FICO and LTV standards. It what has been painfully obvious to even a casual observer of the mortgage market, lenders are much less willing to lend now compared to then. The reasons are widespread, but include trouble getting mortgage insurance for borrowers, the GSEs requiring buybacks on failed loans, unclear regulations, weak home prices and more. To a degree, all of these issues rely on the other to be solved, and given the thorny issues involved, it may be some time before that happens.

That’s a shame, since making it somewhat easier to get a mortgage loan would tend to foster demand, firming home prices. If prices start to rise, losses on failed loans would slow, which might allow some leeway on buybacks. Fewer failing loans would see mortgage insurers in better fiscal straits, allowing them to ease rigid rules. If the market starts to function better all around, regulators might be less tempted to make drastic changes, and new regulations might come sooner rather than later, easing the anxiety of over-regulation which has hung over the market for several years now.

It goes without saying that a functioning housing market would revive the economy in a number of ways. Presently, it’s not the only facet of the economy which isn’t firing on all cylinders, but it is a sizable one.

Service-related business activity cooled in April. The Institute for Supply Management’s survey covering non-manufacturing concerns saw its indicator slip from 56.0 in March to 53.5 in April, the lowest reading since last December. As this is the largest component of the economy, the decline in orders and employment raise some question about whether the economy is faltering this spring as it did last year. However, we’ve had no widespread natural disasters so far this year, and the index remains in fairly solid territory, so we are probably just seeing the lagged effect of the warm winter fading, leaving us about where we were before it began.

Manufacturing led us out of the recession a couple of years ago, and continues to play an important role. The ISM’s survey of manufacturing strength saw an uptick in April, where their gauge rose from 53.4 in March to 54.8, its highest reading since last June. Production, new orders and employment gains were all noted in the report, and countered the weak services report to some degree.

Some of that improvement is due to revived auto sales. According to AutoData, sales of new cars and trucks came in at a 14.4 million (annualized) rate in April, the same solid pace seen in March. Spending continues to replace an aging fleet of vehicles, and this has allowed companies up and down the supply chain to rehire folks idled after the market collapsed several years ago. Despite auto-related contributions, the overall measure of factory orders slipped by 1.5% in March, reversing February’s gain. However, the Factory Orders report lags current events by a bit, and there may have been an upturn in April which won’t show until the calendar turns again.

Hiring has been spotty after a strong-ish first quarter, but for the most part layoffs have been moderate. After three weeks of fairly high levels, claims for new unemployment benefits settled back to figures last seen in March, with just 365,000 new applications filed during the week ending April 28; we had been holding about 25,000 higher than that for much of April. While the lower number was an improvement, all the revisions over the past month or so have tended to push the initial number higher, so the improvement may not be as pronounced when all is said and done.

The outplacement firm of Challenger, Gray and Christmas tracks the number of announced job cuts each month. In April, 40,599 positions were slated to be eliminated, up slightly from March but still measurably lower than seen in January and February. The labor market is suffering more from a lack of hiring than anything else, but the economy’s performance has been far from on which inspires the kind of confidence employers need to start hiring at anything more than a measured clip.

Perhaps more hiring will occur as workers ability to raise output becomes exhausted. After all, there is only so much output you can get from one pair of hands, and worker productivity slowed by 0.5% in the first quarter of 2012. If more output can’t occur to satisfy incoming demand, businesses have little choice but to add some people here and there. With the cost of labor per unit produced easing to 2% during the quarter, there should be fewer barriers to hiring as we move forward.

What’s clear at the moment is that much hiring didn’t happen in April. Just 115,000 new jobs were created, but upward revisions to the last couple of months improved the labor market picture somewhat. Instead of just 120,000 hires in March, the figure was revised up to a firmer 154,000 for the period, so perhaps April’s soft number will see a sizable improvement when the next report comes in early June. The nation’s official rate of unemployment eased to 8.1%, the best level of the recovery so far, but a portion of that improvement was caused by more folks simply giving up looking for work. In the eyes of the Labor Department, if you don’t want a job or aren’t actively looking for one, you’re not technically unemployed.

Our Statistical Release features charts and graphs for 11 products, including Hybrid ARMs. Our state-by-state statistics are now here. Current Adjustable Rate Mortgage (ARM) Indexes Index For the Week Ending Previous Year Apr 27 Mar 30 Apr 29 6-Mo. TCM 0.14% 0.14% 0.11% 1-Yr. TCM 0.18% 0.18% 0.22% 3-Yr. TCM 0.39% 0.51% 1.07% 5-Yr. TCM 0.84% 1.05% 2.04% FHFB NMCR 3.90% 4.08% 4.79% SAIF 11th Dist. COF 1.163% 1.206% 1.469% HSH Nat’l Avg. Offer Rate 4.17% 4.33% 5.06%

Personal Incomes rose by 0.4% during March, but wages increased by just 0.3%. Personal consumption expenditures moved just 0.3% ahead for the month, the slowest pace this year and perhaps another example of how warm winter weather stole some activity from March, as January and February had 0.5% and 0.9% gains, respectively. At least some spending of late has come at the expense of savings, which had dwindled to 3.7% in February but nudged up a tenth-percent in March. It’s hard to know whether a shrinking savings rate is an expression of confidence (e.g. less of a “hunker down” mentality allowing for the use of discretionary funds) or more of a desperate expression of using one’s core reserves after all other options have been exhausted. We certainly hope and expect that it is the former rather than the latter.

That said, it might not be. A high-frequency measure of consumer moods has turned a little darker over the last few weeks after previously storming to four-year highs. The weekly Bloomberg Consumer Comfort Index slumped by 1.8 points during the week ending April 29, landing at minus 37.6 for the week. That’s the worst showing since late February and could be an indication that economic stresses are again building.

Just as we noticed the upturn in the economy late last year, and were among those seeing the present slowdown forming a couple of months ago, it seems to us that the economy has leveled out and there are starting to again be sporadic signs of an upturn in activity. So far, the available data for April seem to be a bit firmer overall than that seen in March, but for the moment the market’s focus remains fixed on the soft patch.

A relatively thin set of new data coming out next week probably won’t shine much new light on the issue. The stock market had a rough week of it this week, and some additional money was plowed into Treasuries, driving rates down. That probably won’t occur to the same degree next week, and we might even see a little reversal when the dust settles. This leaves us to believe that rates will move a couple basis points up off of record lows but the time next Friday rolls around.

For an longer-range outlook for rates and the economy, one which will take you up until late June, have a look at our new Two-Month Forecast.

———-

Like HARP 2.0? We think we have a better plan… for over a year now!
Have a look at our idea — read about HSH.com’s Value Gap Refinance concept, and be sure to let us know what you think.

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These are the latest HSH National Interest Rate Benchmarks — produced from HSH’s weekly editorial survey of mortgage lenders across the US. Click here for more information. We have long-term statistical sets, too.

Source: HSHAssociates.com, Pompton Plains NJ
1-800-UPDATES   Compile Date: 05/04/2012   ©2012 HSH Associates

Popularity: 1% [?]

April 27, 2012 — By a whisker, mortgage interest rates eased to new record low levels this week, as neither the economy nor the Federal Reserve gave any indication that there is a reason for them to rise at the moment. The economic climate has turned considerably more mixed over the last two months, with rather more signs of deceleration than acceleration. It may be only a pause, but it is possible that modest growth may be all we can expect for a while to come yet. To be fair, the new record for rates is just a single basis point lower than the old, and there was little move at all this week.

As they have been, rock-bottom mortgage rates continue to do what they can to support the housing industry and improve household finances, but there are limits to how much support they can provide.

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 eased by two basis points (0.02%) for the week, and at 4.17%, now stands just a single tick below its record low. The FRMI’s 15-year companion shed three basis points (.03%), also moving just below former record lows. Important to homebuyers and low-equity-stake refinancers, already-low FHA-backed 30-year mortgages dropped by another lone basis point to 3.80%, a fresh low-water mark, while the overall average for 5/1 Hybrid ARMs lost two hundredth of a percentage point, landing at an average 2.97% for the survey period, its lowest level ever.

See this week’s Statistical Release and Trend Graphs.

Want to get Market Trends as soon as it’s published on Friday? Get it via email — subscribe here!

The Federal Reserve Open Market Committee met this week to discuss the economy and decide whether any present policies should be changed. No changes were expected, and none came; the only new light shed as a result of the meeting is that at least two more Fed Governors moved up their forecasts of when the first changes to the Federal Funds rate will occur. Formerly, there were two outliers who believed that 2016 might bring the first such move, but they seem to have now shifted into the 2015 camp, and others slid from the 2015 to the 2014 group. Since the Fed has stated on more than one occasion that it expects to keep rates low well into 2014, this came as only a mild surprise at best.

The Fed’s Operation Twist comes to a close in just about nine weeks’ time, but there was nothing in the statement which closed the meeting (nor in Fed Chairman Bernanke’s subsequent press conference) to indicate that the program would be replaced, allowed to expire or extended, but only that the Fed stands ready to change policy if needed and as suggested by incoming data. As the warm start to 2012 has faded somewhat, that suggestion has moved from “less is needed” earlier this year to now somewhat more is warranted. Although the Fed will not tip its hand anytime soon, we more fully explore the Fed’s choices in the latest two-month forecast.

We know that sales of homes have been better this year than last. That said, they are still rather weak, and of late, have begun to soften up a little bit. This change may or may not be due to the unusually warm winter moving some purchases up to January and February, but there was some slowing seen in March. Sales of new homes finished the month at an annualized pace of 328,000, down from an upwardly-revised 353,000 in February. With the dip this month, we have settled back to about January levels, but the actual number of units built and ready for sale continued its steady decline. At 144,000 homes, it is the lowest level since records were kept, and represents a 5.3 month supply, a little tighter than what is considered normal.

Those tight supplies means that as demand returns new construction must occur to meet that need. This is a good thing, but there remains an open question as to when strong and recurring demand will come, given the soft state of the economy. According to the initial report on Gross Domestic Product, the economy grew at just a 2.2% rate in the first quarter of 2012, down from a 3% rate in the last quarter of 2011. While there’s nothing wrong with a 2.2% rate for GDP, it is insufficient to drive down unemployment and foster the kind of environment where people want or need to purchase homes. Mortgage rates may be great, and affordability may be outstanding, but there are finite number of potential homebuyers in this rather still-tentative recovery.

Reflective of the slowing in the first quarter is an increase in initial unemployment claims. After a more-or-less downward drift though the first three months of the year, initial claims settled in the low 360,000 range. Then came April, and we flared about 25,000 claims higher than that and have held at this new level for three weeks now, with the week ending April 21 standing at 388,000 new claims for assistance. This change in pattern calls into question the strength of the labor market, which managed only 120,000 new hires in March. If the weekly claims numbers are any indication, we may struggle to attain even that modest level when the April employment report comes next Friday.

At least the cost of adding a new employee onto the books is holding fairly steady. The Employment Cost Index rose by 0.4% in the fourth quarter of 2011, below expectations and a smaller increase than seen in the third quarter. The indicator includes both the cost of salary and benefit costs; wages improved by 0.5% for the month, and are 1.7% above year-ago levels and gently rising. Benefit costs were also up by 0.5%, but the 2.7% annualized rate of increase is actually on a downward path at the moment.

There was little in the other new data to suggest the forming of any kind of strong counter to the slower pace of growth. The Chicago Federal Reserve’s National Activity Index, an amalgam of some 85 economic indicators, moved to a minus 0.29 value for March after sporting a much firmer +0.07 in February. The NAI reflects an economy growing above or below its “potential”, believed to be about a 2.8% GDP. The slip into negative territory continues a four-month slide and looks to leave us at about a 2% growth rate or less, should the trend persist.

Orders for goods intended to last longer than three years shrank by 4.2% in March. The decline in durable goods orders was driven downward by a sharp decline in orders for new aircraft, but even excluding them left a 1.1% decline. Business-related ordering was also less, slipping by 0.8% for the month. While orders for durable goods are often erratic, expanding one month then contracting the next, two of the last three months have featured unusually sharp declines.

Our Statistical Release features charts and graphs for 11 products, including Hybrid ARMs. Our state-by-state statistics are now here. Current Adjustable Rate Mortgage (ARM) Indexes Index For the Week Ending Previous Year Apr 20 Mar 23 Apr 22 6-Mo. TCM 0.13% 0.15% 0.11% 1-Yr. TCM 0.18% 0.20% 0.24% 3-Yr. TCM 0.41% 0.58% 1.15% 5-Yr. TCM 0.86% 1.16% 2.12% FHFB NMCR 3.90% 4.08% 4.79% SAIF 11th Dist. COF 1.206% 1.224% 1.484% HSH Nat’l Avg. Offer Rate 4.19% 4.37% 5.09%

Two regional outlooks of manufacturing health were a mixed bag. In the Richmond Federal Reserve district, their indicator of health doubled to a reading of 14 in April. Sub-indicators for employment and orders both moved higher, and activity has been pretty solid here for the last four to five months. That’s less the case in the Kansas City region, where there has been a steady decline in activity since a recent peak was seen in February. The last four values have read 7, 13, 9, and finally 3 for April, so the pattern of weakening is pretty clear. In the district, new orders slumped, but employment held steady for the month.

Consumer moods remain tepid at best. The Bloomberg Consumer Comfort Index fell by a sizable 4.8 points in the week ending April 22, ending a multi-week string of holding at about four-year highs. The slippage returns us to levels last reported for the week of March 4. Other lower-frequency measures of happiness were about flat; the Conference Board’s survey of Consumer Confidence came in at a 69.2 mark for April, down 0.3 from March and essentially steady since February. The final review of Consumer Sentiment from the University of Michigan survey nudged 0.2 points higher to 76.4 for the month, but the upward trend here stalled back in January and has barely moved since. Although moods and attitudes are no doubt better than they were last year, there’s little here to suggest any imminent outbreak of the kind of happiness which might see wallets opening. At best, cautious optimism rules the day.

The calendar turns to May next week. As always, the first week of the month brings a slew of fresh data. Of note is a new Senior Loan Officer Opinion survey from the Fed, which will probably detail modestly easing lending conditions for businesses and possibly some in residential lending, too. Sales of new cars, the latest ISM indexes, income, spending and productivity reports all precede the employment report. For many of these, the April data seems likely to be just a little better than March was, but not enough to drive interest rates strongly in an upward direction. If the data is not much better (or not as good), some pressure on the Fed to “do something” is likely to start to grow.

Mortgage rates should be fairly flat again next week.

For an longer-range outlook for rates and the economy, one which will take you up until late June, have a look at our new Two-Month Forecast.

———-

Like HARP 2.0? We think we have a better plan… for over a year now!
Have a look at our idea — read about HSH.com’s Value Gap Refinance concept, and be sure to let us know what you think.

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Popularity: 3% [?]

These are the latest HSH National Interest Rate Benchmarks — produced from HSH’s weekly editorial survey of mortgage lenders across the US. Click here for more information. We have long-term statistical sets, too.

Source: HSHAssociates.com, Pompton Plains NJ
1-800-UPDATES   Compile Date: 04/27/2012   ©2012 HSH Associates

Popularity: 2% [?]