October 22, 2010 — Mortgage rates are mostly as flat as the economy, and there doesn’t seem to be any strong reason form them to budge much one way other the other, at least not until we get past the forthcoming mid-term elections.
HSH’s overall mortgage tracker — our weekly Fixed-Rate Mortgage Indicator (FRMI) — found that the average rate for 30-year fixed-rate mortgages declined by four basis points (.04%), ending HSH.com’s national survey at 4.58%. Important for first-time homebuyers and low-equity-stake refinances, FHA-backed loans are available at an average rate of 4.27%, while the overall average rate for hybrid 5/1 ARMs was 3.54% for the period. HSH.com’s public data series include rates for conforming, jumbo, and most recently the GSE’s “high-limit” conforming products and so covers much of the mortgage-borrowing public.
After the homebuyer tax credits expired back in the spring, homebuilding and homebuying have been pretty weak, and prospects for them getting better in a hurry are pretty slim. While we’ve
championed a new-but-differently-structured tax credit, there seems to be little likelihood of that happening anytime soon. In the meanwhile, Housing Starts have continued to bounce along the bottom, even if the latest figures were the best since June.
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Housing Starts closed September at a 610,000 annualized rate of initiation, better than expectations but in reality little changed from the 608,000 figure seen in August. Single-family starts nudged slightly higher, too, but remain depressed, and permits for future residential construction activity continue to settle back. Although the overhang of foreclosure inventory continues to pressure the nation’s builders, they did display just a little more enthusiasm in October.
The National Association of Homebuilders activity index moved two ticks higher to 16 during the month, the highest figure since June. Sales of single family homes rose by three points, as did expectations for activity over the next six months. Oddly, all this improvement occurred when traffic at showrooms moved just a whisper higher; as well, before you interpret these minor upticks as a sign of impending health, consider that the breakeven point for this indicator is 50, a level we’ve not approached (let alone crossed) in several years. Clearly, a rough road remains ahead of us for housing, and the latest foreclosure mess merely adds more chaos to the equation.
Of course, low interest rates remain a key support for housing and the economy, but their effect has limits. Refinancing activity has been pretty fair, but not nearly as solid as you would expect given record-low interest rates and the mini-refi-boom seems to lack durability. Applications for home purchases are languishing, though, and are again trending toward 2010 lows as we approach the traditionally slower fall and winter seasons. The latest data covering new and existing home sales comes next week, and there is little indication that there will be any substantial change in the persistent weak trend.
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.
The Federal Reserve’s report covering regional economic conditions — called the “beige book” for the color of its cover — found that “national economic activity continued to rise, albeit at a modest pace” in the period covering September through early October. While the previous report spoke of a deceleration in activity, this one seemed to indicate at stabilization of activity at a low level. Given that concerns about deflation have been in the news lately, we take note that “Input costs, most notably for agricultural commodities and industrial metals, rose further. Shipping rates increased, and retailers in some Districts noted rising wholesale prices.” Although these pressures were evident, “higher input costs were not passed on to consumers.”
In a context of weak growth and little final price inflation, the Fed will meet again on November 2 to consider the need for extraordinary measures to support the economy. Their meeting coincides with election day, and any actions they ponder or take are just one of the implications for the mortgage market in the post-election period. We’ve paused to consider a few of those items, and our thoughts can be found in a new article.
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Titled 4 Factors and 3 C’s: Mortgage Markets After The Elections, we look at how any political change might affect the pace and shape of change to the economy and the mortgage market.
It is fairly clear that the economy could use a little bit of support, too. The production-led recovery doesn’t appear to be finished just yet, but it has lost a good deal of forward momentum. Industrial Production eased back in September, slipping by 0.2%, as declines in manufacturing and utilities overcame a gain in mining output. For the first time in a while, the percentage of factory floors in active use slipped, shedding a tenth-percentage point to 74.7% for the month. A localize report of manufacturing activity from the Philadelphia Federal Reserve climbed back just above flatline after spending the end of the summer underwater. The value of 1 for the month represents the barest possible growth, and even if above zero, the indicator was at a solid 21 as recently as May.
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Sources: FRB, OTS, HSH Associates.
That said, the index of Leading Economic Indicators moved ahead by 0.3% for September, pointing to fair activity now and providing hope the June though August ’soft patch’ will give way to a period of somewhat stronger growth in the months just ahead. The LEI’s gain was the strongest since May, so perhaps the fourth quarter will prove more economically solid than the third. The first report for Q310 GDP comes next Friday so we’ll get an overall look at just how weak growth has been.
Weekly unemployment claims continue their same tale. During the week ending October 16, another 452,000 new applications for benefits were filed. Only one more report before the elections remains, and probably won’t be any better than the recent range of 450,000 to 470,000. Folks up for election are probably thankful that the next national employment report doesn’t come until after the election, but it’s a fair bet that no one needs reminding that they don’t have a job when they step into the voting booth on November 2. That, coupled with continuing sour moods among consumers are making some politicians a nervous group. The weekly ABC News/Washington Post poll of Consumer Comfort showed no improvement during the week ending October 17, but instead lost another point to close the period at minus 46.
At the moment, there’s not much to push rates in any direction. A good bit of economic data is due next week, including Durable Goods orders, the Employment Cost Index, the aforementioned home sales and GDP reports, and Consumer Confidence and Sentiment indicators, plus a couple of others. No matter, though. Mortgage and financial markets await the results of November 2 to find some sense of direction.
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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