Mortgage Rates Ease, Again
October 1, 2010 — After near stasis for the past six weeks, mortgage rates again managed a bit of a decline amid mixed economic messages. Increasing speculation that the Fed will initiate substantial purchases of Treasury bonds (so-called “quantitative easing”) to kick-start the economy from its bare expansion helped to drive interest rates a bit lower.
HSH’s overall mortgage monitor — our weekly Fixed-Rate Mortgage Indicator (FRMI) — saw the average rate for 30-year fixed-rate mortgages shed five basis points to begin October at 4.70%. Important to first-time homebuyers and low-equity refinancers alike, 30-year FHA-backed mortgages sported an average of 4.40% for the week. The overall average for Hybrid 5/1 ARMs declined by six basis points (.06%), finishing our national survey at 3.61%. HSH.com’s FRMIs include rates for conforming, jumbo, and most recently the GSE’s “high-limit” conforming products and so covers much of the mortgage-borrowing public.
We mention above that the economic news seems more mixed to us. It wouldn’t be hard to improve upon second quarter GDP, which came in at a final reckoning of 1.7%, but there does seem to be a mild overall uptick (or at least greater stability) in the news for September, the final month of the third quarter. There can be no doubt that 3Q10 will be a weak one overall, but to us, much of the weakness seemed to be concentrated in July and August.
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A case in point would be the collective August reading of some 85 economic indicators packed into the National Activity Index from the Federal Reserve Bank of Chicago. A minus-0.53 reading — down from a breakeven level of 0.00 for July — points to an economy again falling short of its natural potential to grow, which is estimated to be a GDP of perhaps 2.8% or thereabouts.
While we did clearly downshift from July into August, and while we’re not exactly rocketing ahead by any means, there are some improvements to be noted in August and September readings of various indicators.
Three regional indicators of manufacturing health sported gains. The Kansas City Federal Reserve’s localized indicator has had a bouncy time of it over the past three months, falling from 14 in July to zero in August but now back up to 14 in September, indicating that activity re-expanded after a brief pause. Purchasing managers groups based in Chicago and New York saw gains as well, with both pointing to renewed or continued vigor in manufacturing in those regions. Production in the Richmond district continued a five-month slowdown, with their measuring stick sliding from April’s 30 to September’s minus-2, so not all regions are running on all cylinders at the moment. Perhaps reflecting this, the national Institute for Supply Management report did decline 1.9 points to a reading of 54.4 in September, but that was a slightly stronger reading than was expected and left us at a spot which indicates continued (if slower) growth.
HSH has several lengthy series of statistics dating back to the 1980s for FRMs and ARMs, Conforming, Jumbo and FHA products. These can be licensed for use — interested parties should inquire here. |
Auto sales put in their best month since the CARS-infused sales boost of last summer. For September, an annualized 11.8 million rate of sales for new cars and light trucks was reported by Autodata, a 200,000 improvement over August, an encouraging sign. Sales remain well below pre-recession levels, but with employment dynamics and incomes still very challenged, a return to even solid levels seems a way off in the future at the moment. Still, an improvement is an improvement and is quite welcome.
Construction spending rose by 0.4% in August, which would normally be greeted with enthusiasm. However, all of the gain was in spending for public projects, likely goosed by more ’stimulus’ money finally hitting the street. Excluding those effects saw rather more downbeat figures, including a 0.3% decline in spending for housing construction and a 1.4% slump in commercial project outlays. Both housing and commercial markets continue to be plagued with high vacancies and foreclosures, keeping inventory levels high and the need for more construction low.
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Personal Incomes did show a 0.5% rise for August, which was on the high side of expectations. This would usually be great news, but a sizable chunk of the gain was due to the additional extension of unemployment benefits, which had expired in July (no doubt informing some of the poor economic statistics for August). Wages rose by a more pedestrian 0.3%, and overall spending did manage back-to-back increases of 0.4% in both July and August, the best such two-month period since February and March. The nation’s rate of savings nudged back up a tick to 5.8% as consumers prefer to pay down debt and bank what they can in the face of challenging economic times.
Those challenging times are strongly reflected in weekly unemployment claims data, which cannot seem to find a period of steady improvement. While September saw us settle down from a scary upward flare in August, we have only returned to a terrible range, where the 453,000 new applications filed during the week ending September 25 can be counted among the best readings of the year, with only a handful of weeks below it.
Of course, poor labor markets can contribute to a bleak outlook. Most indicators of consumer spirits have been soft, including the ABC News/Washington Post poll of Consumer Comfort, which has barely budged in a tight range for the entire year; at minus-45 for the week ending Sept. 26, it is pretty solidly in the middle of its bounds. The University of Michigan Consumer index of Consumer Sentiment shed a slight 0.7 points between August and September and holding pretty steady now for the past three months. This does make the continued decline in the Conference Board’s Consumer Confidence indicator a curiosity of sorts, since it declined a substantial 4.7 points in September. Although the survey does not inquire as to the political leanings of respondents, we wonder if some of the softening is related to the declining fortunes of prospective Democratic candidates in the upcoming elections. To the extent that this is the case (if at all) we might see improvements or continued declines next month, depending upon which way the winds are blowing as we near Election day.
Our Statistical Release features charts and graphs
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| ARM indexes, APOR rates, Libor, usury ceilings, & more — all available from ARMindexes.com. Email and webservice delivery are available. Sources: FRB, OTS, HSH Associates. |
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The big employment report doesn’t come until next week, and it’s the big gorilla in a fairly empty room. Stock and bond markets enjoyed unexpectedly favorable conditions in September, which is not noted to be a historically great period for equities. October’s been known to be a difficult period, too, but if September’s any indicator, perhaps the markets are simply becoming accustomed to being in active crisis, and can find reasons to celebrate when we’re not. Here’s hoping that the rally’s got more substance behind it than that, but there’s nothing wrong with a little optimism showing somewhere.
If things are showing sporadic signs of life as we suspect, the employment report might just not be as poor as so many have been this year… and last year… and the year before that. Even minor improvements would go a long way toward mending the shattered confidence which is holding the economy back.
Mortgage rates will of course remain near record lows, and averages should remain fairly unchanged for the week.
P.S. If you missed it over the last few weeks, you should have a look at our plan to help responsible homeowners who are underwater. Unlike the “FHA Short Refi” idea, the concept doesn’t penalize homeowners or investors… and there might even be no cost to taxpayers, either. Curious? Read HSH.com’s Value Gap Refinance idea, and be sure to let us know what you think.
Looking down the road toward Thanksgiving? Take a look at our just-posted-today Two-Month Forecast.
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