December 23, 2009 — Mortgage rates rose again this week, the third consecutive such move. After a November dip, rates have again returned to late-October levels.
It’s important not to make too much of the flare in rates. Holidays are now in full swing, markets are thinly populated and traded, and exaggerations in market moves are common. Some of the rise in yields this week appeared to be money shuffling from bonds and into equities to take advantage of any “Santa Claus” rally in stocks. Since there has been a four-day “winning streak” it would seem that this is the case at the moment.
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It’s also important to remember that the ranks of potential homebuyers and refinancers are generally reduced by the demands of the holiday season, so relatively few borrowers are affected by the minor rise in rates.
That said, the overall average for 30-year fixed-rate mortgages related by HSH.com’s FRMI saw this indicator of conforming, jumbo and expanded conforming loans rise to 5.48%. A 5/1 Hybrid ARM counterpart to the FRMI bounced up by six basis points, landing at 4.71%. Borrowers searching for under-5% conforming 30-year FRMs in their stockings will be disappointed this Christmas (unless they are willing to pay about a 1% fee to get it).
Low mortgage rates, low home prices and certain tax incentives are producing distortions in home sales. Existing Home Sales rose by a stout 10.1% in November to a 6.54 million annualized rate of sale, easily the best pace in some time. The spurt in activity drove the level of available inventory on the market down to a near-normal 6.5 months, and prices of homes sold were slightly firmer during the period. With the continued improvement, prices are less than 5% below those recorded a year earlier, so we appear to be climbing out of the valley in that regard (if still a long, long way below peak levels).
With the see-saw tilted in favor of used homes, sales of new homes took a nosedive. On an annualized basis, just 355,000 new homes were moved off builder books in November, the weakest month since February. The on-then-off-then-on-again homebuyer tax credit probably affected newly built stock more profoundly than the ready-to-move-in-30-days variety. Competition from low-priced existing homes and foreclosures of fairly new stock will continue to challenge the new home market. At the diminished sales pace, there are some 7.9 months of supply available, even if the level of built and ready to be sold stock is now a puny 235,000 units.
Daily FRMI rates are available on HSH.com.
Check out our weekly Statistical Release here (and archives here).
The final look at third quarter 2009 Gross Domestic Product was a bit of a disappointment. Economic growth, originally estimated at a 3.5% clip, was revised earlier this month to a 2.8% level, only to be dropped all the way back to a 2.2% gain. While still enough to make the claim that the “great recession” has ended, it is too weak to be called much of a recovery at this point. Forecasts are calling for a GDP north of 3% in the 4th quarter of 2009, but we won’t even seen the first inkling of that until January’s end, and wonder how much of that initial number will be revised away as well. Regardless of the number, the recovery is still more likely to be a grind higher rather than a leap.
The latest National Activity Index figure from the Chicago Federal Reserve saw the economy move closer to its “potential” or natural ability to grow. A combination of 85 economic indicators, the November value of 0.32 indicates a growth rate just below that tendency, which is roughly a GDP rate in the mid- to upper-2% range. In this regard, it does look as though the economy will put in a second quarter of moderate growth when all is counted and tallied.
Since manufacturing has been the impetus for the recovery, we are a little concerned about the more mixed nature of reports on factory health of late, some of which have declined for the last couple of months after a summer/fall jump. The latest to fall into that camp is the regional report from the Richmond Federal Reserve, which ran from deeply negative last winter to strongly positive though September, only to fade back to a -4 reading in November. The recovery does seem to be on uneven footing at the moment as it transitions from a business- to a consumer-led one.
More jobs will help that equation, but existing ones that pay more help too. During November, Personal Incomes rose by 0.4%, with wage growth rising by 0.3%, its biggest gain since April. However, relative to last year, wages are down by 2.8% but are on an improving bent. Spending ticked 0.5% higher during the month, and the nation’s rate of saving remained at a relatively solid 4.7% for the period.
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Sources: FRB, OTS, HSH Associates.
Rising incomes and perhaps holiday cheer infected consumer moods. With just a week left to go, the ABC News/Washington Post poll of Consumer Comfort finally made a new high for the year at a less-terrible level of -42. We’re now coming up on three years since the last positive reading for this indicator, as comfort levels were already well deteriorated by the time the recession came calling.
Not quite making a new high for the year was the index of Consumer Sentiment produced by the University of Michigan. The 72.5 final number for December was one point shy of meeting that mark, but at least can be said to be among the rosiest figures of 2009.
Mortgage and bond markets are tricky things, sometimes twisting and turning at a moment’s notice. The bounce higher in rates over the last few weeks so far has totaled less than a quarter-percentage point and rates remain near record lows despite the increase. For perspective, its worth noting that the 30-year conforming rate hit the year’s high of 5.74% in early June — and we are way, way below that point at the moment.
We suggest that you forget about rate movements and enjoy the holiday. Some of the rise over the past couple of weeks is likely to be washed away when more pronounced activity returns to the markets in a couple week’s time. Until then, we could see slightly higher or lower rates next week, all still well within the context of recent ranges.
We’d like to wish all our clients, visitors and friends a very Merry Christmas. HSH is closed for business on December 24 and 25.
In case you missed last week’s Market Trends: With so many issues facing housing and mortgage markets in 2010, we’re working on a 2010 Outlook, and expect it will be ready sometime next week. We’ll let you know when it comes, but until then, HSH’s new two-month forecast is out..
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