December 16, 2011 — With just a slight wobble downwards, mortgage rates set new record lows this week. A modestly growing domestic economy is producing little upward pressure for rates, while downward force from the Eurozone trouble is a considerable counterbalance. Slack seasonal demand for funds may be playing a bit of a role, too, as even a couple of week upturn in applications for mortgages remains below levels seen as recently as October. In this regard, and should rates persist at or near these levels, we’d expect to see a little bit of pent-up demand released after we get past the holidays.
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 declined by six basis points (.06%) from last week, easing to an average 4.25%. This is a record low for HSH’s series which dates to 1979. The FRMI’s 15-year companion managed to shed eight basis points (.08%) to finish the weekly survey at an average 3.54%, also a record low. Important to homebuyers and low-equity-stake refinancers, 30-year FHA-backed mortgages settled back by three basis points to 3.88% (record low), while the overall average for 5/1 Hybrid ARMs fell by three hundredths of one percent to 3.06%.
Conforming 30-year fixed rates finished the week at 4.05% + 0.31 points on average, besting the previous low of October 10 by five basis points. While there are no directly comparable records of which we are aware, rates are at approximately 60-year lows. That said, there is little practical difference between the rates of the past seven weeks and this week’s new low.
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!
Muted economic growth with perhaps a slightly warmer feel has been evident for the past couple of months now. There appears to be just enough strength as to be able to tread water or even move forward slightly despite the current. Each month that we don’t lose ground allows us to propel just a little bit father along, and we may be able to generate some momentum if the situation across the Atlantic can find some stability.
The Federal Reserve held its final Open Market Committee meeting of 2011; no policy changes were expected, and none came. The statement which accompanied the close of the affair noted that “the economy has been expanding moderately”, while inflation “has moderated since earlier in the year.” Noted headwinds to growth included “apparent slowing in global growth” and a housing sector which “remains depressed.”
It would appear that there was a slight bit of deceleration in our forward momentum in November. Retail Sales nudged forward with a 0.2% increase for the month, about one-third of forecast levels. Excluding auto and gasoline sales, the 0.2% remained. Both were the weakest figures since June and May of this year, respectively. Over the past several months, consumers apparently did eat into their savings to some degree to support spending so perhaps this is just pause as new cash is accumulated.
Business inventory levels ballooned somewhat during October, with an 0.9% overall gain concentrated among manufacturers and wholesalers. Retailers are keeping stockpiles very lean, concerned that final demand might falter, but so far the ratio of goods on hand relative to sales remains fairly tight across the board. This should keep factories simmering along for a while at the very least.
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.
To that end, upturns in activity were noted in two Federal Reserve Districts. In the New York region, the Empire State Manufacturing index reading of 9.5 for December was the best showing since May of this year; over in the Philadelphia district, a third consecutive month of expansion was seen, as the district’s value rose to 10.3 for the month, up from 3.6 in November. Both are recovering nicely from a summer/early fall swoon largely caused by the Japan tsunami disaster.
Industrial Production slipped by 0.2% in November, as manufacturing and mining strength eased while utility output gained, its first rise since July. Manufacturing was said to be negatively affected by the severe flooding in Thailand, which has caused some new supply chain disruptions, and the percentage of factory floors in active use was trimmed by two tenths of one percent, breaking a string of mild gains which has now run for the past couple of years. The interruption from the flooding should prove temporary but we’ll need to see how long the impact lingers.
At least part of the reason that interest rates have eased back as the end of the year has approached is that inflation pressures seem to be subsiding. Largely driven by commodity prices, a strong period of price gains earlier this year has begun to peter out, leveling inflation. Of course, measures of inflation only display the rate of change of prices, not the prices themselves, so earlier price increases for an item may remain even as prices overall aren’t increasing.
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!
Aggregate prices of goods coming onto these shores increase by 0.7% in November, a bit of reversal after three months of declines. Most of that was concentrated in petroleum costs as oil pressed back to about $100/bbl during the month. Excluding that, a 0.2% decline was seen. Costs of goods headed out of here rebounded as well, rising by 0.1% for the month after a 2.1% decline in October. Both are on a declining trajectory relative to earlier this year; as recently as July, import costs were rising at a 13.7% annual clip (now 9.9%), while export costs were more than double the present 4.7% rate.
Some of the costs for imported goods come in the form of raw or partially finished materials. These in turn can increase costs for manufacturers, and those are reflected in the monthly Producer Price Index. The PPI rose by 0.3% in November, a little more than was expected, as volatile food and energy costs goosed the total somewhat. Excluding them, a milder 0.1% rise was noted, and perhaps reflective of the declines in import costs earlier this year, prices at the earliest stages of production are level or cooling.
Even when increases are stickier at the producer level, they don’t always make it or make it completely to the consumer level. The headline Consumer Price Index was unchanged in November from October, but some passthrough in price increases was seen when food and energy was excluded. The so-called ‘core’ rate of inflation moved 0.2% ahead for the month; over the past year, headline inflation has climbed by 3.4% but the core just 2.2%. The 2.2% rate is just slightly above the level the Fed is believed to prefer… just enough inflation to ward off any potential deflationary episode which might be forming.
Our Statistical Release features charts and graphs
|Current Adjustable Rate Mortgage (ARM) Indexes|
Being able to cover those higher prices with higher wages would be useful. To start that process, one must have or obtain a job; at the very least, an existing job must be retained. More folks retained their employment during the week ending December 10 than at any other time this year, as only 366,000 new applications for unemployment assistance were filed at state offices. The further below the 400,000 level we move, the stronger the labor market becomes and the stronger the economy should become. That said, the decline may be exaggerated due to seasonal adjustment factors which play a role this time of year, but even if some of the decline is revised away it is still a signal that the job market is ever-so-slowly healing.
But will this ever improve moods among consumers? Measures of Consumer Sentiment have moved higher of late, as have Consumer Confidence but have yet to over take highs for the year, which weren’t exactly lofty highs to begin with. The weekly Bloomberg Consumer Comfort Index has been virtually flat over the past four weeks, if slightly decline in a slow drip, tenth of a point loss over that period. The latest week recovered all of that, with a 0.4 point rise to minus 49.9 for the week ending December 11. There’s nothing inherently wrong with a flat, stable pattern, but this one remains just a few points above recession lows and well below 2011 highs.
Next week, the holidays kick in with a vengeance, with their usual whirlwind of things to do and places to go. Just as there has been little reason for rates to move much over the past couple of weeks, there will be little reason for them to do so next week. A fairly light calendar of economic data is due, and we’ll get a look at a couple of housing-related indicators, a broad national look at the present economic climate, a revision to third-quarter 2011 GDP and a couple of other items, none of which should move the market very much. Rates will again wobble, possibly downward if we don’t get a “Santa Claus” rally in the equity market.
For an longer-range outlook for rates and the economy, one which will take you up until mid-February, have a look at our new Two-Month Forecast.