October 24, 2008 — Although often volatile, mortgage rates seem to be taking their cues from the stock markets. Just a week after a near half-point increase in rates, a near like-sized move downward hit the markets this week.
HSH’s measure of the overall cost of mortgage money — our Fixed-Rate Mortgage Indicator (FRMI) — declined by 37 basis points (.37%), finishing the survey week at 6.71%. The overall average for hybrid 5/1 ARMs rang in at 6.69%, down just 11 basis point on the week. HSH’s FRMI includes conforming, jumbo and expanded conforming mortgage prices. See the latest trending charts for these and other series.
After a 47-basis point increase last week, conforming 30-year FRMs took back all but eight basis points, landing at 6.22%. Fixed-rate 30-year jumbo mortgages caved in by 30 basis points, which reclaimed everything of last week’s rise excepting three basis points. By and large, we’re about back where we were two weeks ago, if a little worse for the wear.
The very light calendar of economic news this week did feature at least two encouraging reports. The Index of Leading Economic Indicators sported an unexpected rise of 0.3% in September, suggesting that, at least several weeks ago, economic conditions were looking somewhat brighter. Of course, the wicked month for markets which has been October makes it reasonable to expect that the minor gain will prove fleeting. If the LEI works as advertised, economic activity should be on a mild upswing over the period just ahead, but the index probably better reflects the present environment. Still, any positive number is a welcome one.
Weekly claims for unemployment seem to be stabilizing, albeit at lofty levels. The 478,000 filings at state windows during the week ending October 18 did represent an uptick from the week prior, but remains in a range we’ve become accustomed to seeing over the past five or six weeks now, one that suggests continued deterioration in employment markets. The economy shed 159,000 jobs in September and it looks like we’re on a path for a similar number in October.
The measurement of broad economic activity published by the Chicago Federal Reserve essentially failed to find any in September. The National Activity Index declined to -2.57, a 26-year low reading. The indicator was dragged downward due to the influences of Hurricanes Ike and Gustav and the on-going strike at Boeing, among other items. Their effects should be short-lived, so next month may find some improvement, at least back to the poor showing seen in August. No matter the reading, the NAI was in negative territory for the fourteenth consecutive month.
Consumer attitudes are getting darker again. Equity investments and home values continue to get battered, billions of dollars of future tax increases are being spent each day, and the economy continues to stumble. The weekly ABC News/Washington Post poll of Consumer Comfort dipped to -50 during the week ending October 19, just a single tick shy of its all-time low. Even plummeting gasoline prices can’t seem to lend any cheer, even if prices have fallen by 30% or more in just a short period of time.
To that end, and with the oil heating season kicking in, the fall of the price of a barrel of crude oil to Friday’s $64 range is most welcome. Sliding gas prices add valuable dollars to weekly and monthly budgets, and lower oil prices means we can fill the tank for about the same price as last year. Combined, those freed-up dollars will provide important support to consumer spending on everyday “luxury” items, like a sandwich or a cup of coffee at a neighborhood cafe. Many small businesses depend on those discretionary dollars and they have been hard to come by in recent months.
Despite ongoing dire predictions for the housing markets, sales of existing homes rose strongly in September, rising 5.5% to a 5.18 million (annualized) rate of sale. Measured against last year, sales showed their first year-over-year increase in three years, and moved at a pace last seen in August 2007. Inventory levels declined, landing at a still-elevated 9.9 months of supply at the present rate of sale. Prices are still falling, though; the 3.4% decrease in the median price (and near 9% decrease from a year ago) means that there is still considerable oversupply.
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Daily FRMI rates are available at HSH.com. News outlets seeking daily statistics for conforming or jumbo mortgages should contact HSH for more information.
Foreclosures continue to play a role here, as lenders dump properties for sale back into already glutted markets. To those who might say that sales are only rising because of their influence, we say “So what?” Government intervention aside, the market is functioning as it should: homes will sell when some form of fair market price is reached. It also disproves claims that the mortgage market is hopelessly broken or shut down; most, of not all, of the (probable) five million plus new and existing homes that will be sold in this year to new owners need mortgages, and that financing has to come from somewhere. Older borrowers who had mortgages in the 1960s, 1970s, 1980s, and even the 1990s find today’s ‘highly restrictive’ underwriting standards to be fairly normal and customary, and although we may be a long way from ‘healed,’ with many more issues to be addressed as we go along, there is still a market for mortgages and homes in America.
Our Statistical Release features charts and graphs
for 11 products, including Hybrid ARMs.
Our state-by-state statistics are now here.
Some of the Federal Reserve’s offer of “cash for equities” exchange program was put to work this week, as PNC sold $7.7 billion of itself to the government, then promptly took $5.58b of that cash and bought its rival, National City Corporation. National City has been struggling for some time, and there were concerns that they might fail at some point, but they mostly have been hanging on, if impaired. Part of Treasury Secretary Paulson’s comments this week seemed to pave the way for such transactions, and may actually serve to encourage other strong banks to acquire weaker rivals or otherwise expand their operations. While not technically the lending that such infusions of capital were hoped to spark, such moves may allow the new entity to better serve markets that the acquired firm simply could no longer effectively serve. Whatever the case, here’s hoping we get a good return on our investment.
The Federal Reserve Open Market Committee meets next week to discuss all these issues and more. There is presently a strong expectation that a half-point cut in short-term interest rates will be announced at the close of the meeting, and equally strong expectations that the market may be disappointed if it doesn’t get one. That said, the market has been disappointed in a lot of things lately, poor earnings being what they are and all, and the Fed did just trim rates a little over a week ago, so we’re not convinced that it’s a done deal at the moment. Mr. Bernanke did implore the Congress to develop another stimulus package, though, and a new potential plan may be in the works. The last — a cash jump start — didn’t provide any enduring support, which could only come from a combination of cash and tax cuts. With all the spending already going on, that’s probably not a likely outcome, but we might find another check in the mailbox before year’s end.
Along with the Fed meeting, a slew of new data is due next week. We’ll get the first look at 3Q08 GDP; forecasts call for a half-percent contraction. New Home Sales will probably be poor, if the NAHB index is any indicator, and the Employment Cost Index and others will probably paint a picture of a weakening economy with few bright spots.
The big drop in rates behind us for the moment, and with some lift in 10-year Treasury yields late in the week, we could see a couple basis point rise in rates for next week despite soft data. For a longer view, see our just-posted Two-Month Forecast.
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