January 25, 2013 — American mortgage borrowers probably don’t realize it, but the Federal Reserve isn’t the only force moving mortgage rates. Trouble overseas in the Eurozone has kept plenty of cash flowing into US-backed investments (especially Treasuries) over the past year or two, helping to keep both interest and mortgage rates lower than they would otherwise be.
Although there has been no marked improvement in the economies of our overseas trading partners (nor our own), there was a signal this week that the financial crises over there are being managed, if not showing signs of outright improvement. This has set the stage for a rise in mortgage rates, which have already nudged higher.
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 climbed by six basis points (0.06%) to 3.73%, returning to highs of two weeks ago. The FRMI’s 15-year companion increased by just five basis points, cresting over the three percent mark for the first time since early November and landing at 3.02% for the week. FHA-backed 30-year FRMs rose by four hundredths of a percentage point (.04%), moving up to 3.36%, as inexpensive mortgage money remains readily available to credit- or equity-impaired borrowers. Also, the overall average rate for 5/1 Hybrid ARMs took back the two basis points it fell last week, ticking back to 2.71%
See this week’s Statistical Release and Mortgage Trends Graphs.
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Back in late 2011, the European Central Bank set up a cash-injection mechanism for its member banks. On Friday, it was announced that about 30% of these emergency funds were to be repaid to the central bank on January 30, a larger amount than was expected. That the banks don’t need these funds is a signal that the banking market is in healthier shape now than it was then; as a result, some investor funds parked in US debt moved out of these safe havens and into more potentially profitable opportunities, and Treasury yields rose as a result. Certain Treasury yields strongly influence fixed mortgage rates.
To be fair, only about 30% of these three-year loans are being repaid, so it’s not as though the issues have gone away, but perhaps only that they aren’t worsening or even as bad as was feared. As such, the optimism may prove short-lived once the reality of the situation (70% still in use and many economies which are still a mess) re-sets in. For now, though, a bump in underlying yields means a bump in rates is likely.
Our own economy is moving, but not exactly with any great speed. Perhaps the biggest driver of the economy in recent months has been housing, but even that lost a little forward momentum in December.
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 inquirehere.
Sales of existing homes eased by 1% in December, and November sales were also trimmed by 1%. The 4.94 million (annualized) rate was still the second best reading of the year, but may suggest a levelling off of sales, at least for the moment. The report noted that a lack of inventory was holding back sales growth and also serving to firm up prices, which finished the year with an 11.5% gain compared to 2011. Sales were up 9% on a year-over-year basis, but with inventories dwindling to a 4.4 month supply there may not be enough desirable homes available at the moment to fuel continued sales growth. Certainly, increasing prices may prompt some sellers back into the market, and bank-owned properties may begin to come on line in greater numbers, too, but for the moment, supplies are tight.
Sales of newly-built homes point to much the same set of conditions. There was a 7.3% month-over-month drop in sales reported in December, where the annualized rate of sale fell to 369,000 after almost making it to 400,000 in November. Pretty firm sales have depleted inventories here, too, with 4.9 months of supply available at the present rate of sale; according to the Commerce Department, there are an actual 151,000 built and unsold homes available, up from the series’ nadir of 143,000 back in August. Still, 2012 sales were some 20% higher than 2011, and prices are about 15% higher now than then, too. The new home market is a smaller but perhaps more economically-important portion of the housing market, given all the moving parts which make up the construction and financing of a house, and a levelling of this market may serve to flatten overall economic growth somewhat.
Growth is already fairly flat, holding somewhere around the economy’s potential to naturally grow, if the latest National Activity Index from the Chicago Federal Reserve is correct. The +0.02 value of the indicator suggests that growth in December was running at perhaps a 2.6% clip or so for overall GDP, but the NAI value for the month was a considerable downshift from the +0.27 seen in November. We’ll get out first look at fourth quarter GDP next week when the advance estimate is due; forecasters expect perhaps a 2.2% rate or thereabouts, which would represent some slippage from the 3% rate seen in the third quarter of 2012.
What will 2013 year bring for mortgages, housing and more? You’ll want to read HSH’s
“10 Thoughts for ‘13″. Check it out today!
A couple of local reports covering manufacturing health in two Fed districts found little to get excited about. In the Kansas City Federal Reserve district, their indicator showed another below par value of minus 2, the fourth consecutive mildly negative reading for the region. A much more abrupt and pronounced fall-off in activity was noted in the Richmond Federal Reserve’s territory, where their gauge slumped from plus five in December to minus 12 in January, so there is little forward momentum to be seen in manufacturing in at least these two areas of the country.
But there is some general economic momentum, if the latest reading of the index of Leading Economic Indicators can be trusted. The Conference Board’s tool posted a rise of 0.5% in December, the biggest increase since September. It remains to be seen if the sapping of incomes via the end of the payroll tax holiday will cause a downshift in the outlook presented here, but for the moment, December was on the positive side of the ledger, suggesting growth should persist or even accelerate a little in early 2013.
That paycheck-draining change to withholding has damped moods. The weekly Bloomberg Consumer Comfort Index backpedaled for a third week in a row, easing back to a reading of minus 36.4 for the week ending January 20. This measure of consumer moods has shed 4.8 points since the end of 2012, a decline coinciding with the resolution of the fiscal cliff. With a national debt deal and automatic federal spending cuts both yet to be fully resolved, there’s little reason to expect much improvement in consumer moods anytime soon.
Our Statistical Release features charts and graphs
|Current Adjustable Rate Mortgage (ARM) Indexes|
But there may be a wildcard in that equation which could improve spirits. New claims for unemployment benefits spent an unexpected second week down in the 330,000 range (actually 330,000 for the week ending January 19), the lowest figure in almost exactly five years. These back to back low readings (335,000 for week ending the 12th) either suggest a unexpected seasonal/holiday anomaly or a genuine change in the pattern for layoffs. If it is the latter, we will be in a much better position to see the economy grow more quickly in the months ahead, but we’ll need a couple of more weeks at these levels (at least) to feel confident in that assessment.
An absence of bad or worsening economic news is not the same as genuine good news, and should not be confused as such. However, even cold weather can seem manageable if it stops getting colder or even warms up a few degrees. Perhaps that’s more the case of where we have been and where we are now; several years of very cold economic weather (the recession) have given way to something not nearly as cold. Although still rather colder than normal, and with occasional icy breezes with which to contend, we find ourselves in what is now a couple of years of somewhat warmer climes (the recovery). That is is no longer getting colder is something to cheer or even become enthused about, but it’s hardly the same as a long, mild period of cloudless economic weather.
Given where we have been, we’ll certainly take what we can get, but will remain mindful of all of the dark clouds and cold winds which can return yesterday’s chill rather quickly. For the moment, some optimism and sun prevail, but these are unlikely to be permanent fixtures. There remain plenty of challenges to be addressed, both here and abroad, and no reason to think there are any immediate fixes available.
Mortgage rates will bump upward next week. If market conditions at the end of this week are any indication, we might see another 5-8 basis point jump in the overall average for the 30-year FRM.
For an longer-range outlook for rates and the economy, one which will take you up until late March, have a look at our new Two-Month Forecast.