April 5, 2013 — Building political tensions and saber-rattling from North Korea, Japan going nearly all-in on quantitative easing and a worrisome downshift in economic activity helped bonds to rally this week, driving some yields down to 2013 lows. Mortgage rates followed right along, moving downward somewhat, offering a little better opportunity for folks to finance or refinance with rates a little nearer to record lows.
If the effects of the spending sequestration are still largely unassimilated into the economy, this recent economic slowness could be exacerbated. As a result, the economy may simply continue to limp along, failing to produce a period of strong growth that would allow for tapering or termination of the Federal Reserve’s monetary IV drip.
Of course, that’s good for mortgage rates.
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 eased by five basis points (0.05%) to 3.77%, its lowest rate since late January. The FRMI’s 15-year companion slipped by three basis points (.03%) to 3.02% for the week. FHA-backed 30-year FRMs managed a decline of four basis points (0.04%), falling to an average rate of 3.35%, while the overall average rate for 5/1 Hybrid ARMs dropped by two hundredths of a percentage point, landing at an average 2.65%, matching an all-time low.
See this week’s Statistical Release and Mortgage Trends Graphs.
Want to get Market Trends as soon as it’s published on Friday? Get it via email — subscribe here!
Signs of a soft end to the first quarter of 2013 were widespread this week. The Institute for Supply Management’s indicator of factory activity slumped by 2.9 points, landing at 51.3 for March. Although still above the breakeven level of 50, the indicator moved to a 2013 low, and drops us back to the “barely expanding” level we say for much of the last half of 2012. New orders and production indexes declined, but the employment component moved hopefully upward for the period.
With less of a stumble than its factory-based twin, the ISM survey covering service-related businesses backed down by 1.6 points to trek to 54.4 for March. While still a fairly healthy reading, it was also the lowest value seen since last August. A sub-index of employment slowed markedly to less-strong levels, as did that for new orders.
It is becoming clearer that the economy isn’t firing on all cylinders, not adding any momentum from a pretty solid first two months of the year.
That can be seen no more clearly than in the March employment report. After a string where three of four months featured in excess of 200,000 new jobs created, March faltered badly, adding just 88,000 new folks to the nation’s payrolls, the weakest gains since June 2012. Although the nation’s official rate of unemployment slipped to a recovery low 7.6%, all of that “improvement” was due to another shrinkage in number of unemployed actively looking for work, which slipped to 63.3% of the eligible population. Although February job counts were revised upward, the 32,000 increase was offset by a downward revision of 38,000 to January’s tally.
Can’t refinance? Refinanced already? Want to save money — or more money — on your mortgage, regardless? Try the unique new PreFi Prepayment Refinance and LowerRate Mortgage Prepayment calculators at HSH.com!
Given the difficulty in landing a new job after a lengthy period of unemployment, it is certainly possibly that many former workforce participants have given up and gone back to school for training or retraining. That would seem to be the suggestion from the expansion in consumer borrowing, which has favored installment lending throughout the recovery. Installment lending — largely education and auto loans — expanded by $17.6 billion in February, the largest increase of the recovery to date. Revolving credit (credit cards) continues to see only cautious usage, with balances rising by just $500 million during the month. Overall, balances over the last four months are roughly unchanged.
More labor market concerns are also evident. The latest report covering announced position reductions from the outplacement firm of Challenger, Gray and Christmas recorded 49,255 job terminations in March, down just slightly from February. The two most recent reports look nearly identical to those seen in October and November last year, bookending a period of much fewer announced job losses.
After trending down to the best levels of the expansion so far, claims for new unemployment benefits have popped higher. During the week ending March 31, some 385,000 new applications for benefits were filed around the country; the 28,000 gain put the weekly figure at its highest level since last November. It is possible that seasonal adjustment issues related to the Easter holiday has distorted the number upward, but the trend has been higher over the past three weeks, regardless, so we aren’t continuing to move in the right direction at the moment.
If HSH’s weekly MarketTrends newsletter is the only way you know HSH, you need to come back and check out HSH.com from time to time. You’ll find new and changing content on a regular basis, unique calculators, useful insight, articles and mortgage resources unlike anywhere else on the web.
Sales of new vehicles continue to be a bright spot. Although off a whisker from February’s levels, the 15.3 million (annualized) rate of sales of cars and trucks is quite solid and holding near the best levels of the recovery to date. Like sales of new homes, which have many contributing components, auto production also produces widespread economic benefits, if less so.
Data from February outshines that seen in March. Spending for new construction projects powered ahead by 1.2% for the month, driven by outlays for residential projects (+2.2%) but also joined by spending increased for commercial buildings (+0.4%) and public works projects (+0.9%). With state finances slowly getting better and infrastructure needs aplenty, it is possible that we will see more spending for road repairs and such as we move forward though 2013.
The broadest measure of new orders at the nation’s factories rose by a full 3% in February, a better than expected gain and a nice turnaround from a 1% decline in January. Although both durable and non-durable orders rose, the measure of “core” capital goods spending done by businesses did slip by 3.2% for the month, so the gain in the headline might be overstating the value of economic benefit the headline might suggest. We’ll now more about all of this when the first look at first quarter GDP comes out in a few weeks’ time.
The nation’s imbalance of trade narrowed in February as the United States increased the value of its exports by $1.6 billion for the month, while imports held fast. That we could push more goods and services off these shored at a time when many trading partner economies are in difficult shape is a good sign, but since we are a net importer, more economic benefit might accrue to them if we were bringing more goods and services here.
Our Statistical Release features charts and graphs
|Current Adjustable Rate Mortgage (ARM) Indexes|
The latest look at consumer moods found some stabilization. After a two-week downturn, the Bloomberg Consumer Comfort Index rose by three ticks to minus 34.1, about 2.5 points off the recovery’s best levels. It is hard for consumers to be cheery given all the issues in the headlines and little belief that solutions will come from Washington, so leveling off is about the best that can be expected at the moment.
Saber-rattling by North Korea isn’t new, nor even unexpected, since the new leadership there is trying to prove it belongs on the world stage. However, it adds nothing to soothe frazzled investor nerves still sensitive from years of turmoil and trouble, and at least some investor money moved back into the safety and relative soundness of US Treasuries as a result.
Japan’s foray into massive quantitative easing to spur its long moribund economy is a new twist. In looking to ignite some inflation after years of falling prices, the Bank of Japan will accumulate some seven trillion Yen (about $200 billion dollars) of government bonds every month (by contrast, the Fed’s program is merely a total of $85 billion per month). The new policy hopes to create a 2% inflation rate as soon as possible, but it is unclear what will happen. Too little inflation, and the BOJ will expand the program; which is fine, but if it runs too hot, the usual prescription is to tighten policy, risking renewed recession. It’s a tricky balance, to be sure, and one which bears watching as it unfolds.
After cresting over 2% a couple of weeks ago, the steady drumbeat of not-as-good-as-expected data and various global issues have helped interest rates to fall, mortgage rates among them. The slippage in rates this week should persist into next week and may allow some of the more marginal refinance candidates a crack at it again. Rates are likely to slip over the next couple of days, just in time for the spring homebuying season to get fully underway.
Absent a spate of really good news from the forthcoming retail sales, weekly jobless claims or consumer sentiment reports, average rates can be expected to fall by perhaps a tenth percentage point (0.10%) over the next week. It will be interesting to see the minutes of the Federal Reserve’s last meeting, due out Wednesday, where some discussion of how to taper or end the Fed’s QE programs will probably be revealed. At the moment, any tapering or ending seems before year end seems unlikely.
For an longer-range outlook for rates and the economy, one which will take you up until late May, have a look at our new Two-Month Forecast.