July 27, 2012 — By the barest of margins, most mortgage rates managed to move still lower this week. There was only a light set of economic data to push them around, and with none particularly unexpected or unsettling, mortgage rates mostly drifted sideways as a result.
HSH.com’s broad-market mortgage tracker — our weekly Fixed-Rate Mortgage Indicator (FRMI) — revealed that the overall average rate for 30-year fixed-rate mortgages declined by just a lone basis point (.01%), easing to a new record low of 3.85%. The FRMI’s 15-year companion managed actually rose by a single basis point, landing at 3.15%, one tick above record lows seen last week. Important to homebuyers and low-equity-stake refinancers, already-low FHA-backed 30-year mortgages shed another six basis points to slide to an incredible 3.42%, while the overall average rate for 5/1 Hybrid ARMs lost another basis point, and finished at 2.81% for the week, enough to again set a new low for the most popular kind of ARM.
See this week’s Statistical Release and Trend Graphs.
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Home sales have generally benefitted from low mortgage rates and improving affordabilty; overall, as rates have moved lower, sales have moved higher. However, the latest report from the Census Bureau found that sales of new homes eased a little in June, sliding by 8.4% when compared against an upwardly revised May figure. May was bumped up to an annualized 382,000 rate of sale, and the decline to 350,000 was comparable to figures seen in March and April. Even with the decline in sales, inventories of unsold homes remain at a tight 4.9 months, with just 144,000 homes built and ready for sale.
Continued forward traction in housing won’t likely happen until we see regular employment gains. Low prices and fantastic mortgage rates mean little if you don’t have an income to make monthly payments, no matter how low they might be. We’ve seen almost no progress on that front for months, and new unemployment claims remain elevated. During the week ending July 21, new claims for benefits did contract to just 353,000, but there are any number of seasonal adjustment issues in July of each year, making the number less reliable than usual as automaker plants shut down for retooling and such. There have been no corresponding reports to indicate that hiring has improved much of late.
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.
Of course, with a weak economy, there’s not much reason to expect businesses to hire or retain as many employees as they would in better times. The first quarter of 2012 sported a Gross Domestic Product with a meager 2% rate of growth, and the advance report for the second quarter shaved a half-percentage point off of that, coming in at 1.5%. Simply put, the intensification of the troubles in Europe and now Spain to a greater degree has caused a downshift in our economy. In turn, this has served to give us the record-low interest rate environment we currently have, as investors have pulled money out of riskier investments to pour it into the relative safety of US-backed debt.
For our part, we’d still be happy to trade somewhat higher interest rates for an additional percentage point (or more) of growth. There is nothing wrong with mortgages with a 4% handle, which were record lows up until recently.
The economy did improve by a whisker in June, according to the Chicago Federal Reserve’s National Activity Index. After a worrisome reading of minus 0.48 in May, the indicator moved to a much-less negative 0.15 in June. The NAI tells whether the economy is growing above or below its natural inclination to grow, thought to be a GDP of perhaps 2.6% or so. Clearly, we spent the second quarter well below that, but the improvement in June does lend some optimism that the third quarter of 2012 will begin on a somewhat firmer note.
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Some of the support for the NAI came from improved orders for Durable Goods. In June, a second consecutive gain of 1.6% was seen, but even as the headline figure was encouraging, there was a slide in orders related to business investment, which may presage some additional slowing at factories. Factory activity as measured by the ISM did slip below breakeven in June, and we’ll get as look at July come next Wednesday.
Whatever the ISM reports, any activity is likely to be unevenly spread around the country and industries. Two regional looks at factory activity from the Federal Reserve Banks of Richmond and Kansas City moved in opposite directions, with Richmond’s measuring tool falling from minus 3 in June to minus 17 in July, while Kansas City nudged two points higher to a value of five for the month.
With plenty of troubles in the headlines, and gasoline prices heading upward again, it’s little wonder that consumer moods are souring anew. The final reading of Consumer Sentiment from the University of Michigan eased by 0.9 points in July, landing at a value of 72.3, the lowest figure since December 2011. On a higher-frequency note, the weekly Bloomberg Consumer Comfort Index slipped backward from minus 37.9 to minus 38.5 in the week ending July 22, and has now been flat or sliding downward for four consecutive weeks.
Our Statistical Release features charts and graphs
|Current Adjustable Rate Mortgage (ARM) Indexes|
Next week, there’s plenty of last of the month and first of the month data for the markets to work with and digest. That will likely result in somewhat more movement for mortgage rates than we had to contend with this week. Market movers include the July employment report, the twin ISM surveys for manufacturing and service-related business activity, personal income reports, factory orders and construction spending. Did we neglect to mention there is a Federal Reserve meeting, too? It’s not expected that the Fed will announce any new strategy at the end of the affair, but you can bet that there will be plenty of discussion about it when the group meets. That said, there is always a slight possibility of a policy move, but the Fed probably wants to see if the extension of Operation Twist can do the trick before embarking on a new path.
Mortgage rates could move lower on some expression of disappointment if the Fed doesn’t move or reveal any intentions of moving sometime soon. The rest of the data will probably be mostly flat at best, and mortgage rates will probably move downward a couple basis points by the time the week comes to a close.
For an longer-range outlook for rates and the economy, one which will take you up until late August, have a look at our new Two-Month Forecast.