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| Mortgage Rates, Economy Down January 4, 2008 -- Data revealing clues about the economy in December have turned darker, and expectations of weaker economic performance is serving to drag down mortgage rates. The average overall 30-year combined fixed rate mortgage slumped by eighteen basis points (0.18%), closing the nation's broadest observation of mortgage prices at 6.47%. Conforming loans led the charge downward, shedding almost a quarter-percentage point to land at 6.07%, while jumbos managed to slip back under 7% for the first time in several weeks. The overall average for Hybrid 5/1 ARMs held unchanged at 6.35% for the week.
Recent holiday revelry is likely to be replaced by a more somber attitude in the new year. Uneasy about the future for corporate profits, investors have been hesitant about putting money into stocks, preferring instead the safe harbor of 100% guaranteed investments like Treasury bonds. In addition, a wash of cash and political troubles in a number of areas has pushed oil prices back to the $100/bbl level, and gold has surged to new records. Central banks continue to press to make liquidity available for banks in hopes of forestalling a more significant pullback in credit availability. They've had some slight success, as witness the easing in LIBOR rates; there's also been an uptick in borrowing from the discount window (in which banks borrow directly from the Fed). Moreover, the two auctions so far by the new Term Auction Facility were well received (two more legs have been announced), allowing a bank to borrow money from the TAF without any stigma or whispers about the quality of its assets.
While the answer is probably no, at least not directly, we wonder: Is some of that new money responsible for the surge in commodity prices? Although November's economic data seemed reasonably firm, the newest information covering December is decidedly weaker. Measured by the Institute for Supply Management, activity at the nation's manufacturers took a nosedive, landing at a contractionary 47.7 reading during December after holding at a little better than breakeven in November. Manufacturing had been powering along, led by strength in exports, but has run out of gas, at least for the moment. Unfortunately, this has come at a time when there are renewed concerns that consumers will begin to pull back even more than they have so far. That would be less of a concern if the jobs market was strengthening along, but it's not. For most of the fall, unemployment claims moved in a sawtooth -- but inexorably rising -- pattern, and the slight decline in new application during the week of December 28 to 336,000 was just another tooth in the pattern.
Rising unemployment claims seem to have caught up with the nation's official unemployment rate, which hit a flat 5% in December, the highest in about four years. Unsurprising, given uncertain times, new hiring came in at a puny 18,000 during the month, a truly weak ending to what was generally a decent quarter for job creation. Far fewer new jobs were created in 2007 than in 2006, which is to be expected in the later stages of an expansion; of course, the stall in hiring may be revised away to some degree next month. November's gains were ratcheted up from 94,000 to 115,000, but even a like-size improvement would produce little change to the December picture. Service-related businesses managed to hang on during December, according to the ISM. Their index of activity for non-manufacturing companies eased only slightly to 53.9 in December from 54.1 in November, so there was at least some encouraging news available. Also, auto sales finished the year at an annualized 16.3 million units sold, a little better than November and October's pace. The consumer isn't ready to quit just yet. Looking a little further back, Existing Home Sales for November surprised to the upside (it's been a while since we could claim that). The 5 million units sold (annualized) was up by 0.4% from October's figure; the available supply of homes at today's sales levels eased a little to 10.3 months, and prices actually ticked 2% higher during the month. Overall, there's been little change in activity here for the past three months, roughly mimicking the pattern seen in New Home Sales (three weak-but-even months, followed by a hard slump, which hopefully won't be the case here). Find fresh mortgage rates you can believe every day at HSH. Construction Spending also popped higher in November, rising by 0.1%. Residential building was again a big negative, but commercial and public outlays for buildings and bridges did move higher. Also higher was the overall measure of Factory Orders for November, which gained 1.5%; however, based on the ISM report, those gains seem to have come to an abrupt halt in December. Consumer attitudes brightened a little during the week ending December 30. The ABC News/Washington Post poll moved up three ticks to -20, still a very dark reading. The improvement was likely just a little holiday cheer, and probably not a sustainable improvement.
We're weeks away from the next Fed meeting, but the market-led drumbeat for larger cuts in short-term rates is fully underway. At the moment, the betting is leaning toward another quarter percentage point trim in short-term rates (and hoping for a half), but that's not a sure thing at this point, even with weaker growth enveloping us. The Fed's earlier forecasts anticipated this soft period, and their updated forecasts suggest that it may persist for a while longer than originally anticipated. At the same time, inflation isn't gone by any means, so the Fed has somewhat less wiggle room than they would like. Also, to be fair, nominal interest rates for most kinds of credit aren't all that high, and lots of liquidity has already been added to the systems -- and at lower interest rates than was available just a few months ago at that. The slowing of the economy -- especially as the Fed holds firm, at least for now -- is to the advantage of good credit borrowers. 30-year conforming loans are holding just over 6% and threaten to dip into the 5-percent range next week; refinancing could be in the cards for many borrowers as we move deeper into winter, presenting chances to get out of old ARMs and maybe even draw a little equity for balance-sheet recasting. Contrary to the headlines, there are plenty of people who haven't emptied all the equity out of their homes, and there are many homeowners (some of them fairly newly-minted) with plenty of market- fueled equity available, even with the latest devaluations. The downdraft in fixed interest rates was greater than we expected, and does seem likely to continue somewhat next week. There won't be much significant economic data, save some input on import price pressures, and the markets will spend their first full week of '08 reviewing and digesting the data from the last few weeks, none of it particularly strong. Look for a dip of just a couple of basis points. For a longer look, see our new Two-Month Forecast. If you've got an opinion on who should fix the mortgage mess, why not take our survey and let us know how you feel? For today's top stories, see our daily news column. | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| For further Information, inquiries, or comment: Keith T. Gumbinger, Vice President Copyright 2008, HSH® Associates, Financial Publishers. All rights reserved. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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