September 16, 2011 — It’s become an all-too-familiar phrase this year: “Mortgage rates post new record lows.” But aside from that favorable happenstance, what other positive can be found on which to focus in the housing market? Delinquencies, foreclosures, underwater homeowners, borrowers with sub-par credentials and more have been a continuing story for years now, and there is little abatement in those areas. Even record low mortgage rates have limits in how much assistance they can offer, but we may see a new push to help long-term rates even lower in the weeks and months ahead. Whether or not it will do much good remains an open question.
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 decreased by another four basis points (0.04%) from last week, moving to a new record-low average of 4.38%. FHA-backed 30-year fixed-rate mortgages, especially important to first-time homebuyers and low-equity refinancers, shed five hundredths of a percentage point, closing the week at just 4.01%. Hybrid 5/1 ARMs might interest a few borrowers, with five-year fixed-rate periods slipping by another five basis points this week to average an ultra-low 3.08%.
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 conducts a two-day meeting next week to discuss what can be done to stimulate an economy which clearly needs some help. While the Fed might consider a new round of bond or mortgage-backed security buying, the beneficial effects of those programs ideas are believed to largely spent. Instead, two ideas which seem likely to get the most play are changing the mix of the duration of holdings on the Fed’s balance sheet (called “Operation Twist”), which would see the Fed trading in maturing short-term bills and notes in favor of purchasing more longer-term bonds, and/or lowering the interest the Fed is paying banks to park excess funds with the Fed itself.
The concepts themselves are pretty simple. Changing the investment mix means that short-term rates (already near zero, and so hard to force lower) might increase slightly as the Fed purchases fewer of them, while long term rates might decline as the Fed willingly buys these bonds, which will tend to push their prices up and their yields down. Rather than compete against the Fed, this change might push investors to seek out higher yielding “risk” assets, taking money away from the safe haven of Treasuries and putting it to work it the private economy, which in turn might provide some boost to economic activity.
At the same time, lowering the yield banks are earning by keeping money parked and out of circulation might see banks instead pushing to lend or invest in elsewhere in the economy, which might make more money available for lending, and at possibly easier the terms for certain kinds of borrowers, most probably business borrowers.
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.
How much benefit will come from this is a matter of speculation, but there is potential for it to boost GDP growth by a couple of tenths of a percent or so. Given the weak state of the economy — presently hovering around a 1% GDP rate — any boost would be welcome, but any new Fed program is certainly not a panacea for what ails the economy. Perhaps there are other ideas which may come to light when the Fed meeting ends on Wednesday, and more radical ideas may certainly be considered by the Committee, but these seem most likely to come at the moment.
The economy went flat in a number of ways in August; we already know that there were zero new jobs created during the month. To that we can add a zero percent gain in Retail Sales for the period, as consumers obviously hunkered down amid the debt-limit fight, news of the US credit rating downgrade and the late-month Hurricane Irene. Pervasive uncertainty and a lack of confidence has simply further enhanced the already cautious moods of Americans and there is little improvement to be seen anywhere. The weekly Bloomberg Consumer Comfort Index remained at its second lowest reading of the year of minus 49.3 during the week ending September 11, although given the somber tenor of the 10th anniversary of the terrorist attacks in the US it would be hard to expect much enthusiasm. That said, Consumer Sentiment has improved just a touch, according to the preliminary September survey from the University of Michigan. Their indicator nudged 2.1 points higher to land at a reading of 57.8, but when weighed against 2011 highs of over 74 back in May it is clear that confidence remains crushed.
Some price pressures have flattened, too, but unevenly, at best. Prices for imported goods declined in the aggregate by 0.4% during August, while we pushed 0.5% price increases out the door to our trading partners. However, goods coming onto these shores are some 13% higher than a year ago at this time, and exports have increased by 9.6%, so it’s not like actual costs have declined, but the rate of increase has been slowed.
HSH has put together some fantastic new content you should check out. If you haven’t been to HSH.com lately, you’ve missed seeing our new study that can help consumers and businesses decide where to locate or relocate in and around a dozen major cities. If you’re moving, considering moving or are just curious about how your market stacks up, you should check it out!
Costs at the producer level were unchanged in August from July. The Producer Price Index registered 0.0% at the “headline” figure, while the “core” rate (exclusive of the most volatile components) rose just 0.1%. Price pressures at the Producer level have been largely diminishing since a series of sizable bumps early this year, and have increased by 6.5% at the headline level and 2.5% at the core over the past 12 months.
It would be better in may ways if this were being mimicked at the Consumer level but that’s not yet the case. The Consumer Price Index rose by 0.4% in August, fast on the heels of a 0.5% rise in July and still on a rising bent. Food prices are largely to blame, but the hoped for decrease in gasoline prices has not yet occurred to help provide some offset to those increases. Removing food and energy costs leaves a 0.2% rise for the month, with an annual rate of 3.8% headline and 2% core, respectively. That 2% core rate is thought to be well aligned with the Fed’s preferred level, but also may lend the Fed some pause when considering how best to stimulate the economy forward, since the last thing it wants is to drain consumer pockets even further via higher prices.
Growth in manufacturing had been the stalwart of the recovery so far, bus has faltered to a real degree in recent months. Two local reports from Federal Reserve district offices bear this out quite keenly. The Empire State Manufacturing Survey from the NY Federal Reserve found a -8.8 reading in September, a leg down from the weak -7.7 noted for August and a fourth consecutive decline, and employment as measured by the report contracted for the first time this year. Over in the Philadelphia district, there was an improvement of sorts, as their indicator rose from August’s minus 30.7 to a less-bad -17.5 in September. The Philly index has declined in three of the past four months and underscores a worrisome trend of less contribution from the factory sector to promote economic growth.
Our Statistical Release features charts and graphs
|Current Adjustable Rate Mortgage (ARM) Indexes|
There was a pickup in output broadly across the Industrial Sector in August, though. Industrial Production rose by 0.2%, with manufacturing and mining pushing modestly higher while utility output backed off. The slight increase in output helped pushed the percentage of active factory floors to a recovery high of 77.4%, but gains have been grudging at best here and we still remain well below pre-recession levels.
So the economic picture remains fairly dark, and the Fed will be doing… something with perhaps some benefit, but probably nothing immediate. Arguments in Washington over how much to spend and where on attempts to boost employment will continue, but even if the release whatever funds are made available came tomorrow, it will be a while before those effects kick in at the earliest. All of this argues for a continuation of the troubled period in which we have found ourselves for months now, with little relief in sight. That suggests that lower to largely stable mortgage rates are likely to persist, with occasional flares higher as bright spots appear (such as the agreement to lend money to Greek banks and forestalling defaults seen this week). It’s hard to fully know what the Fed has up its sleeve or how investors will ultimately react, and that may come in to play as we go along.
Next week, the focus will be on the Fed and the few housing-related indicators which are due. An improved stock market firmed up interest rates as the week came to an end, and that suggests that we’ll see mortgage rates firm up a little bit next week, probably just enough to lift us off record lows. Of course, a wildcard in the forecast is the Fed; if something unexpected comes in the statement which will come on Wednesday, some additional volatility in either direction might occur.
For an longer-range outlook for rates and the economy, one which will take you up until early October, have a look at our new Two-Month Forecast.
There’s a lot going on in mortgage markets this summer and beyond. If you missed it, we wrote an outline to get you up to speed. Take a minute and read HSH’s 2011 Mortgage Market Swirl.
One way to keep refinancing activity moving forward is to help underwater borrowers refinance. How? Have a look at our idea — read about HSH.com’s Value Gap Refinance idea, and be sure to let us know what you think.
Have you seen HSH in the news lately?
Want to comment on this Market Trends? Post it here — add your feedback, argue with us, or just tell us what you think.
Popularity: 2% [?]