April 19, 2013 — The drumbeat of mediocre economic news continues, and interest rates have settled, with fixed rate mortgages sliding to a place near their lowest levels of 2013.
The retreat for rates — taking HSH’s FRMI from a 3.88% high in March to the present 3.68% — has seen us move to the bottom end of the recent range, excepting the 2013 floor of 3.67% seen in January. An equivalent peak for rates was seen as recently as last August, and our current bottom-of-the-bottom record low of 3.58% was achieved in December, so we still fit right in between those markers.
The difference in mortgage rates from recent peaks to valleys may be more psychological than fiscal, though, since the difference in payment between 2013 highs and this week’s average is just $11.37 per month for a $100,000 30-year fixed rate mortgage.
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 a single basis point (0.01%) to 3.68%, its second lowest rate of 2013. The FRMI’s 15-year companion also dropped by one basis points (.01%) to 2.93% for the week. FHA-backed 30-year FRMs followed along with their own decline of just one basis points (0.01%), falling to an average rate of 3.29%, while the overall average rate for 5/1 Hybrid ARMs failed to move at all, holding an average 2.61% for the week.
See this week’s Statistical Release and Mortgage Trends Graphs.
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Housing markets are no doubt helped by persistently low mortgage rates. However, it would be a mistake to think that improvement will come in a straight-upward line, what with high levels of unemployment and caution about prospects for economic improvement just ahead. Although housing starts bounced 7 percent higher for March, all of the gain was concentrated in the multifamily portion of the market. The rate of initiation for apartment and townhouse complexes rose a fat 31% to 417,000 units started when compared to February; the much larger and more important single-family component of the report went the other way, easing 4.8% to 619,000 units, about the same annualized levels as seen in December and January.
Despite the spurt in starts, caution could be seen in permits for future activity, which declined by 3.9% to 902,000 units during the month. Unlike the above, though, single-family permits were flat at 595,000 while multi-family permits slumped to 307,000. Regardless, there is no doubt that the new home market is healthier than it has been in years, and thin inventories and pent-up demand should provide solid support, provided the economy cooperates as we move forward.
Given March’s greater activity, it does seem a little odd then that there was an decline in April’s National Association of Home Builders sentiment index. Despite expectations for a one-point increase, the trade group’s Housing Market Indicator slipped two notches to 42, a six-month low. Sub-indexes for single-family sales and traffic both declined somewhat, but hopes for the future six months hence rose by three points, moving into a moderately expanding stance… which itself seems a little at odds with the decline in permits above. Overall, things in the new home market are better, but there are limits to how fast improvements can come.
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The Index of Leading Economic Indicators stepped backward in March, posting its first negative reading since August 2012. The 0.1 percent decline did just trim the top off a string of three solid months in a row, so it’s not as though things have come to a sudden standstill. The decline may suggest that slower growth from January’s change to payroll taxes and then-higher gasoline prices left us with little momentum as we start the second quarter. Our first look at the first quarter of 2013 will come with next Friday’s advance GDP report. It won’t be hard to beat the 0.4% figure from the fourth quarter of 2012; some forecasts expect about a 3 percent clip, but we may not make it to that lofty level.
The Federal Reserve’s own survey of regional economic conditions (aka the “beige book”) found that the economy expanded at a “moderate” pace in the six weeks leading up to early April. Manufacturing activity was OK, retail sales and consumer spending were “mixed” and real estate and construction were said to be “improving”. It’s not clear that this and the prior assessment are of the kind to suggest a 3 percent plus value for GDP growth in the first quarter.
With March’s poor hiring report, we already know that labor market growth stalled in March. At the same time, weekly claims for new unemployment benefits spiked at the end of the month, but have settled back into familiar territory since. During the week ending April 13, some 352,000 new applications for benefits were filed, up by 4,000 from the week prior. We have seen these levels plenty of times this year, and they suggest that modest hiring is likely to be the case in April, too (although probably stronger than March, now that warmer spring weather seems to be taking hold in many places).
Industrial production rose by 0.4% in March, a good sign, but digging into the report suggests that all the rise came from higher utility output caused by cold March weather; manufacturing and mining concerns reported declines in output during the month. The gain in utility usage did move the needle on the amount of industrial workspace in use to 78.5%, a two-tenths percent rise; manufacturing use slipped back by a like amount.
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Two regional April reports on manufacturing activity failed to find any upsurge. The New York Federal Reserve’s Empire State manufacturing index slipped in April, sliding from a 9.2 reading in March to 3.1 for the month, managing to hold onto the positive side of the ledger despite troubles in the Eurozone and federal spending declines kicking in. Over in the Philadelphia Federal Reserve district, that was much the case, too, although the fall was smaller. The Philly Fed’s gauge eased from 2.0 in March to 1.3 in April; a downward wobble, but still holding in the black.
A sudden and unexpected slump in gasoline prices over the past few weeks has brightened consumer moods, according to the weekly Bloomberg Consumer Comfort Index. The mood-measuring tool rose by 4.8 points during the week ending April 14, an unusually sizable move. It may also be that consumers were also simply glad to get their taxes filed for the 2012 tax year before the deadline, but whatever the cause, the minus 29.2 reading for this indicator was its highest since January 2008.
Falling gasoline prices are also influencing inflation trends. The Consumer Price index declined by 0.2 percent in March, and now features an annualized rate of just 1.5 percent. That downdraft is solely due to lower energy prices and flat costs for food. However, excluding them from the equation actually leaves a slight gain of 0.1 percent, and the so-called “core” measure of consumer inflation is running at a rate of 1.9% over the past year, just about the Fed’s preferred speed limit. Of course, with inflation below those stated goals, the Fed should continue to feel comfortable in pumping the economy with cash at rock-bottom interest rates for some time yet.
Our Statistical Release features charts and graphs
|Current Adjustable Rate Mortgage (ARM) Indexes|
Overall, it seems to us that the economy is neither growing much nor declining much, but rather treading water at a moderate pace, probably a GDP of somewhere between 2 percent and 3 percent at the moment. That would be a fine level if we were closer to full employment or didn’t have yawning debts and deficits to manage, but we do, and stronger growth for a fair period of time will be required to more fully engage all the folks who lost jobs in the downturn.
Including China’s rate of growth sliding below 8 percent, we are in a slow growth period here and abroad. Interest rates will have a tough time getting any upward traction in such a climate, although we could have flares higher from time to time, as we did earlier this year. It may be a long slog, too, with at least one Federal Reserve official predicting perhaps five to ten years of financial instability ahead, with the Fed continuing unusually low interest rates as policy.
Let us all hope we are back to whatever will pass for “normal” long before then.
In the more immediate future, a fairly busy week of new data is due. The Chicago Fed NAI should give us a big picture look at things, New and Existing Home Sales will tell us how well low mortgage rates are supporting housing, and we’ll get a first look at Q1 Gross Domestic Product and a final April review of Consumer Sentiment. Mortgage rates seem content to wander at about these levels, with an equal chance of rising or falling a couple of basis points.
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.