HSH Weekly Market Trends, 01/18/08: Mortgage Rates: Down With The Headlines

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Mortgage Rates: Down With The Headlines January 18, 2008 -- Another week brings still lower mortgage rates. With the headlines asking "recession?", the spotlight is on weak economic growth, and mortgages can't resist the downdraft. RATES FALL AGAIN: The combined 30-year fixed rate mortgage sank 15 basis points (.15%) to levels last seen nearly a year ago, where this week's 6.31% average compares with those seen often last winter. Hybrid 5/1 ARMs caught the downward pull, too, with the average 5/1 Hybrid falling a full one-third percent to close the survey week at 5.69%. Conforming fixed-rate loans, already in an efficient market, slipped by just 11 basis points, while fixed-rate jumbos declined by 14bps. The 5.76% for 30-year fixed conforming loans this week was last seen in September 2005. HSH STATISTICAL RELEASE The Nation's Mortgage Market: Average Rates for Residential Mortgages Week ending January 18, 2008   Fixed Rate Mortgages Adjustable Rate Mortgages Survey Area 15 Year 30 Year Composite 1 Year Composite NW/National 5.67% 6.16% 5.93% 5.54% 5.76% CA/Statewide 5.89% 6.29% 6.11% 4.88% 5.71% CT/Statewide 5.65% 6.22% 5.91% 5.69% 5.69% DC/Washington DC 5.74% 6.10% 5.94% 5.69% 5.77% FL/Statewide 5.73% 6.14% 5.94% 6.12% 5.93% MA/Statewide 5.64% 6.25% 5.88% 5.71% 5.76% NJ/Statewide 5.71% 6.16% 5.92% 5.24% 5.76% NY/New York City 5.83% 6.29% 6.05% 5.50% 5.79% NY/Statewide 5.71% 6.16% 5.96% 5.49% 5.70% NY/NYC Co-op Apts 5.58% 6.07% 5.83% 6.04% 5.88% PA/Statewide 5.65% 6.15% 5.92% 5.45% 5.67% TX/Statewide 5.70% 6.16% 5.95% 5.23% 5.92% Owner-occupied 1-4 Family and Condos: Previously Occupied Homes. Data include both conforming and jumbo loans for "A" credit borrowers and include a wide range of LTV and discount structures. Click here for detailed explanations of the terms and data used above. Hybrid ARM statistics are also available. HSH has 20+ years of first-mortgage pricing. Ask about licensing our data for use in your application. It would seem that, all of a sudden, liquidity added to help the mortgage market (in the form of lower rates and places to park loans that cannot easily be sold) is having the desired effect. The Fed's TAF was designed to do just that by allowing loans to be exchanged for fresh cash to lend, and it appears that lenders are starting to take full advantage of those opportunities. Signs of economic strength are uneven at best, but there's no "smoking gun" pointing to a recession at hand. The Fed's own "beige book" survey of regional economic conditions found that seven of 12 Fed districts reported slight increases in activity, two described conditions as "mixed," and three said growth was slowing. The information was collected up through January 7, so it's about as fresh as a broad-based survey can be, and doesn't seem to denote anything more than slow growth at present. Have you seen the latest? Freshen your blog or website with our new graphs ... free. Or grab a daily rate graphic or an online calculator. Your site, your choice! Many December indicators were less than stellar. The month did look decidedly weaker overall than November, including new labor market weakness. In recent weeks, there have been concerns that Retail Sales would turn out to be poor for the traditional holiday period, and when looking solely at December, one might conclude that to be the case. Retail sales eased by 0.4% overall, but less (-0.2%) when cars and gasoline were subtracted. November was still a strong month (at plus 1%), and January is the time when a lot of gift certificates and cards are redeemed. Before issuing declarations of doom and gloom, we might do well to wait to see how January turns out, and include November to get a better sense of how the holiday went. At present, November and December readings taken together are quite positive. Industrial Production was unchanged in December from November, shaking off expectations of a decline. Manufacturing, mining and utility output all slid back from their November readings, and the percentage of factory floors in active use eased slightly to 81.4% during the month. Housing starts cratered by 14.2% during December to 1.006 million (annualized) units initiated, but the sharp decline is part and parcel of the inventory-clearance process by builders. Surprisingly, single family construction dipped less than did multifamily, but overall, there's little reason to make more housing units available where there are plenty already in inventory. Building permits declined by 8.1% to 1.068m annualized. With the slower pace of starts, inventory levels should begin to creep downward, putting us that much closer to a rebound in construction. The National Association of Homebuilders survey of member sentiment was about unchanged in January at a reading of 19. December was revised down to 18, but the last five months have been essentially unchanged. Some forward-looking optimism was evident, as their six-month forecast moved up a couple of ticks to a 26 level. Purportedly forward-looking in its own right, the Index of Leading Economic Indicators declined by 0.2% in December, which was a little more of a dip than expected. On balance, that was actually a better reading than was November or October, so there's been an improvement of sorts with regard to the outlook. Still, it's been months since we've seen a positive reading, so activity is and will likely remain slow. To see how slow, we'll get the first reading on 4th quarter 2007 GDP at month's end. Find fresh mortgage rates you can believe every day at HSH. Aside from slow growth, inflation seems to be at the forefront of discussion. Food and energy costs are sapping economic strength and show few signs of abating, but core measures of inflation remain more subdued. The Producer Price Index for December eased by 0.1%, rather better than forecasts (and a nice recovery from the 3.2% increase in November). That said, PPI headline inflation climbed over 6% in 2007, and there are continue to be increases in the earlier stages of production which may yet get to the surface. 'Core' PPI, though, moved 0.2% higher for the month and has risen about 2.2% for the year. Roughly, that's the same story for the Consumer Price Index. December headline CPI rose by 0.3%, higher than expected but a decline from November. However, in the real world, rising food and energy costs are borne out of pocket, and leave fewer disposable dollars to spread throughout the broad economy, hurting growth. The 4.1% increase in CPI over the past year is well above the Fed's hoped-for levels, as is 'core' CPI, which moved 0.2% higher for the month and by 2.4% over the past year. Current Adjustable Rate Mortgage (ARM) Indexes Index For the Week Ending Previous Year Jan 11 Dec 14 Jan 12 6-Mo. TCM 3.21% 3.23% 5.14% 1-Yr. TCM 3.04% 3.20% 5.03% 3-Yr. TCM 2.71% 3.17% 4.74% 5-Yr. TCM 3.13% 3.49% 4.70% FHFB NMCR 6.35% 6.50% 6.54% SAIF 11th Dist. COF 4.172% 4.233% 4.346% HSH Nat'l Avg. Offer Rate 6.31% 6.59% 6.28% Get the most popular indexes from ARMindexes.com. Email and direct-to-database delivery are available. Sources: FRB, OTS, HSH Associates. MORE RATE CUTS: The Fed is expected to slash interest rates again at month's end, and there are new talks of pumping as much as $150 billion in near-term fiscal stimulus to help push the economy through a troubled time. Such measures run the risk of worsening inflation, and the Fed may soon have to deal with worse problems than slow growth and political and market pressures to cut rates. The beige book did note that "According to most reports, businesses continued to face rising costs for food, petrochemicals, metals, and energy-related inputs" and added that "Several Districts noted that transportation costs for most products increased." Inflation may not be on the front burner at the moment, but it cannot simply be ignored, either. Some news about regional manufacturing trends in January was a mixed bag, too. The Philadelphia Fed reported a sharp contraction in their area, with their gauge falling to -20.9 from a bare-breakeven level in December. Countering that was the New York Fed, which only saw a slight easing in their district, where their index fell to 9.0 from 9.8 the month prior. The Philly Fed number may be an "outlier," though, but would point to bleak conditions if these levels stick through next month. Although the labor market was quite weak in December, January seems to be telling a somewhat different story. After hitting a recent high of 357,000 in late December, claims for new unemployment benefits have driven a straight downward line to this week's 301,000. Has the labor market improved this month, or has it just stopped getting worse for the moment? One indicator of a coming recession would be rising unemployment claims, as we had last fall, but the recent retreat may forestall a turn into economic contraction. Certainly, something must be happening. After months of declines, the University of Michigan Survey of Consumer Sentiment popped five points higher in the preliminary January report. That's at odds with the ABC News/Washington Post weekly poll, which gave back four ticks last week to again test recent lows. Most of the increase in the UMich poll was for current conditions, so perhaps there's been some improvement yet unrevealed in other economic data. THE REFI WINDOW OPENS: As mortgage rates slide, borrowers with good credit will start thinking about refinancing. While there is certainly a chance that rates will go lower in the weeks ahead, there of course is no certainty that this will occur. While pondering what might happen to interest rates, it's instructive to note that a lot of firepower is being brought to bear (in the form of lower interest rates and, perhaps, stimulus measures) to help keep economic weakness from spreading. Coupled with fresh injections of liquidity via the TAF, and including market-led efforts to fix the interest-rate-reset problem (lower market rates are helping, too), at least somewhat better economic and housing health may appear not too far down the road, and perhaps sooner than expected. If signs that repair measures are beginning to work start to show, or if the economy doesn't drift closer to recession, interest rates could turn higher in a hurry, especially as inflation remains lurking about. Probably not next week, though. A fairly light economic calendar is due, but we will get the latest on Existing Home Sales among other things. Stocks sold off heavily this week, and underlying interest rates have retreated to very low levels. Call it a hunch, but we could see a little tick higher in interest rates next week. JUST UPDATED: our Two-Month Forecast. ALSO NEW: our new site survey wants your opinion: How long before the housing & mortgage markets recover? For today's top stories, see our daily news column.
HSH Market Trends SURVEY Housing and Mortgage Recovery: Sooner or Later? We've all seen the headlines about -- and perhaps personally experienced -- the turmoil in the mortgage and housing markets. It's a fact, though, that not everyone has been affected to the same extent. How you are doing will affect your perception of these times in which we live in. Whether you're a homeowner, wanna-be homebuyer, real estate agent, mortgage lender, or just an observer, we'd like your opinion: when do you think things will turn around? When do you think real estate markets will begin to recover? 2nd quarter of this year 3rd quarter of this year 4th quarter of this year 1st quarter of next year 2nd quarter of next year 3rd quarter of next year 4th quarter of next year 2010 or later How far do you think home prices will decline? 2 to 3% 4 to 6% 7 to 9% 10% or more How much equity cushion do you think you have in your home? (Value of your home minus what you owe for any mortgages) 0% to 5% 6% to 10% 11% to 15% 16% to 20% 21% or more Will we have a recession this year? (Defined as two consecutive quarters of negative growth) Yes No Which section of the mortgage market will be the first to fully recover? Jumbo (rates become more normalized) High-LTV (i.e. piggybacks, no-money down loans) Alt-A (i.e low and no-documentation loans, etc) PayOption & Interest-only products Subprime Lending 6) Do you have plans in 2008 to Buy a home Sell a home Build a new home Refinance existing mortgage(s) Get a home equity loan or line of credit To see the results of our most recent survey question Fixing The Mortgage Market Mess, click here.
For further Information, inquiries, or comment: Keith T. Gumbinger, Vice President Copyright 2008, HSH® Associates, Financial Publishers. All rights reserved.

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