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| Mortgage Rates Ticking Higher March 28, 2008 -- It was a relatively quiet week in the mortgage market: no new initiatives, solutions, bailouts or programs were offered to attempt to smooth out the many wrinkles which keep the industry on edge. That's not to say that none are being conjured up for later release, but at present there are still plenty of changes for markets to digest. For their part, mortgage interest rates rose just a little, no matter which kind or size of loan you prefer. The combined rate revealed in HSH's weekly FRM indicator ticked seven basis points higher, landing at 6.57% for the week. The combined average for 5/1 Hybrid ARMs climbed by a scant two basis points to 6.41%. True conforming 30-year FRMs edged up eight basis points (0.08%) to 5.99%, while their jumbo counterparts moved up by seven BP, and the gap between those two stands now at 130 basis points.
Since there were no new solutions introduced this week, we thought it would be a good time to examine some of the recent changes and what they mean to mortgage markets and mortgage interest rates. Our recent synopsis of events looks at the effects and benefits of the Fed's interest rate actions, changes to capabilities of Fannie Mae and Freddie Mac, the Federal Home Loan Banks, and more. While we're admittedly in the minority, we lean toward the view that stability is beginning to return to the nation's housing markets, and that with new credit facilities in place we could be setting the stage for noticeable improvement during this spring homebuying season. That view was bolstered this week by the news that sales of existing homes rose by 2.9% during February. The lift in annualized sales to 5.02 million was unexpected by some, but the sharp decline in interest rates in early February, coupled with lower home prices, proved to be a reasonable lure for those potential homebuyers waiting for good opportunities to strike. The upward flare in sales means that inventory levels eased somewhat, sliding to a still-bloated 9.6 months of available supply at the present rate of sale. New Home Sales did fall during February, but the rate of decline has slowed when compared against various periods over the past year. The annualized rate of sale slipped to 590,000 units, and while that figure was actually better than expected, it represented a drop from 600,000 the month prior. One consideration in the report was that sales slumped in the Northeast by a whopping 40% in February, an unusually large change. That slump may, however, be revised next month, and/or next month might show an outsized gain in a return to the previous trend for sales in the area. Even with the fall, new home prices rose by 6.8% on a month-to-month basis, and inventory levels remained at 9.8 months of stock available. As we noted last month, the actual number of homes available for sale continues to decrease, but demand for them is decreasing at about the same rate, if not more.
Home prices continue to decline. The Case-Shiller 20-city home price index noted a 10.7% decline in home prices over the past twelve months (January 2007 to January 2008), and OFHEO's new monthly home price index covering the nine census areas found a national month-to-month decline of 1.1% between December 2007 and January 2008. Declines in prices and mortgage rates should help to bring some stability to housing markets, a situation at least partially revealed in the existing home sales figures noted above. How sensitive to rates are consumers? Last week, the conforming 30-year FRM dipped below 6% for the first time in about five weeks, and refinancing activity shot up by 82%, according to the Mortgage Bankers Association's weekly application index. Applications for purchase money mortgages surged more than 10% higher, too. There is a reasonable pool of borrowers who will respond to low rates, but they will need to hold near these levels for a while, unlike the late January-early February roller coaster ride they took. Economists continue to debate whether the economy is in a recession. If so, it didn't start in the fourth quarter of 2007, as the final reading for GDP for that period remained at 0.6%. While weak, we did remain in positive territory, but the lack of any upward revision makes a decline in the first quarter of 2008 that much more likely. Price indicators in the final report found a 4% annualized rate of increase for Personal Consumption Expenditures (PCE); core PCE rose by 2.5% at an annualized rate, somewhat above the level thought to be preferred by the Federal Reserve. Find fresh mortgage rates you can believe every day at HSH. February was a difficult month for the nation's manufacturers. Orders for Durable Goods, which had already slid 4.7% in January, caved an additional 1.7% in February. These numbers are notoriously fickle, though; last July, a 6% gain was followed by three months of negative numbers before breaking back into positive territory, and we had a positive spike in December which has now been followed by two declines. We may follow the same path this time as well, but for the moment, even "core spending" by businesses has turned rather downward. Local readings of manufacturing strength were a mixed bag. The Richmond Federal Reserve noted a nice surge in March as its measuring tool rose into positive territory to a reading of 6, the highest number since last September. However, the Kansas City Fed found no improvement in health in its region; their gauge remained at -5 for a second month.
February's challenging economy saw the Chicago Federal Reserve's indicator of national economic activity move further into the red. Its reading of -1.04 -- down from -0.68 in January -- says that the economy has moved further away from what is thought to be its potential to grow at a non-inflatonary level, somewhere around 2.8% GDP. The indicator has now sported seven consecutive negative readings, with the latest the lowest among them. News of a faltering economy has cast a pall over consumer moods. The weekly ABC News/Washington Post poll of Consumer Comfort spent a second week at -31 (week ending 03/23). On balance, Consumer Comfort has improved during March, a sentiment not seen in either the University of Michigan's report on Consumer Sentiment or the Conference Board's measure of Consumer Confidence. Sentiment slipped back to a 16-year low reading of 69.5, while Confidence almost joined it by putting up a 64.5 figure, 'only' about a 15-year low. Unhappiness is quite pervasive at the moment, and more misery may be just around the corner when gasoline prices begin their annual Spring rise. Personal Incomes did manage a 0.5% increase in February, perhaps enough to help offset those higher energy costs. Despite that kicker in income, spending rose only 0.1%. Consumers stuffed some of that money into bank accounts; the nation's saving rate nudged onto the positive side of the ledger, rising by 0.3% for the month. The income report also has an inflation-revealing component, like the GDP report does, and PCE measured here rose by just 0.1%, as did "core" PCE (exclusive of the most volatile influences of food and energy). Weekly jobless claims eased back a little during the week ending March 22, with 366,000 new applications for benefits filed at state windows. Looking over the past four weeks, the level of jobless claims in March is near-identical to that seen in February, so the early indication is that we'll likely see a net job loss for March similar to the drop of 63,000 we saw in February. The employment report is due next Friday. There was little this week to suggest a start of any new trend for interest rates. At best, markets have found a kind of shaky stability, but it's a nervous one. Sizable rallies in stocks last week failed to hold ito this week, and investors remain wary of 'risky' assets. Mortgages remain suspect, however, and even as declines in rates bring borrowers into the market (generating new supplies of these 'risky' assets), demand for them continues to be muted. That imbalance means that rates cannot easily fall, or fall quickly, at least for the moment. Any surge in supply must be drained from the system before the next can be absorbed. Its unlikely that any of the economic data out next week will more the market too much in either direction. Collectively, the figures will likely be weak, including employment, but mortgage rates will probably move little - maybe just enough to erase this week's slight increase. HOT OFF THE PRESS: our new Two-Month Forecast. OUR LATEST site survey wants your opinion: How long before the housing & mortgage markets recover? 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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