HSH Market Trends report: Stability for fixed mortgage ratesMortgagePress.comHSH Market Trendws, housing statistics, fixed mortgage rates, Fixed-Rate Mortgage Indicator
The overall average for 30-year fixed rate mortgages eased by
two basis points this week as HSH's Fixed-Rate Mortgage Indicator
(FRMI) slipped to an average rate of 6.53 percent. The FRMI
includes rates for conforming, jumbo and the new "expanded
conforming" mortgages. Meanwhile, the overall average for 5/1
Hybrid ARMs shed 20 basis points, dipping back to 6.16 percent, the
lowest such average in about two months.
Conforming 30-year fixed rates moved slightly closer to six
percent, sliding by five basis points to close the survey period at
6.03 percent. Jumbo rates, though, kicked two basis points higher,
so the differential between the two series widened back to 115
basis points.
While we may be teetering on the edge of a recession (or, as
some claim, may already be in one), the new economic data out this
week was pretty fair, on balance.
After three consecutive months in "declining" territory, the
Institute for Supply Management's report on activity levels at
service-oriented businesses popped over the 50 mark in April,
signaling a return to growth. Since the U.S. economy is
predominately a service-led one, improving activity here may serve
to offset declines in manufacturing-related industries, which were
struggling but steady at last report. Costs, however, continue to
rise, and the 'prices-paid' subindex of the ISM Services report
nudged higher during the month.
Although the Mortgage Bankers Association reported a 15 percent
lift in applications this week, those inquiries face higher and
more hurdles to clear to be accepted in this market. The Federal
Reserve's second-quarter survey of Senior Loan Officers noted that
credit standards are still rising at the nation's banks and
thrifts. According to the report, almost 63 percent of respondents
raised the bar for prime mortgage borrowers, almost 78 percent did
for subprime borrowers, and about 76 percent for those seeking
"non- traditional" (such as interest-only and PayOption ARM)
mortgages. Despite those challenges, demand for mortgage loans
actually improved somewhat, declining at a slower pace than that
seen in the first quarter of the year.
While inflation of course remains a concern, what with food and
energy prices roaring, the good news is that those price pressures
haven't yet begun to seep into wages, which would cause even bigger
headaches for the Fed. One key offset to inflation is increasing
worker Productivity, which flared higher by 2.2 percent in the
first quarter of 2008, an unexpected increase from Q407's 1.8
percent gain. With the move higher, the cost of labor included in
each measured unit of production also edged 2.2 percent higher, and
that was actually down from 2.8 percent in the 4th quarter. Rising
productivity means that businesses can pay more without needing to
raise prices, but it also means that fewer new workers are needed
to produce the same amount of goods.
One reasonable proxy for actual retail sales is the monthly
report which covers the sales of major "chain store" retail
concerns. After a half-percent decline in a tough March, April
chain-store sales moved 3.6 percent higher, powered by a 9.2
percent gain at warehouse clubs. Concerns that consumers would
retrench, thus worsening the downturn, were at least party allayed
by the report. That increased spending was probably "put on
plastic" if the latest Federal Reserve report covering Consumer
Credit is right. In March, borrowing on credit cards and
non-real-estate installment loans expanded by some $15.3 billion, a
near-tripling of February's draw. Non-revolving credit (auto loans
and such) rose by $9 billion while credit card balances grew by
$6.3 billion.
That unexpected gain in sales and spending resulted in a decline
in stockpiles at firms which sell goods at wholesale to retailers.
Wholesale Inventory levels declined in March by 0.1 percent as
sales moved 1.6 percent higher during the month. That moved the
ratio of goods on hand relative to sales back to a cyclical low of
1.09 months of available supply. With a little luck and faith, this
should result in an increase in orders to manufacturers and provide
some lift to that sector of the economy.
Manufacturing has largely been living on exports for the last
year or so, as the weak dollar has made our goods much more
competitive in world markets. The recent firming of the dollar may
slow that somewhat, but for the moment it seems to also have served
to slightly narrow our imbalance of trade. In March, the gap
between what we imported and what we exported closed a bit, and now
stands at $58.2 billion. Although slowing economies in other places
saw our exports ease by 1.7 percent, the more pronounced domestic
slump saw imports fall by 2.9 percent for the month. One reflection
of the reduced demand here was that imports from China (with whom
we run our largest deficit) fell by over $2 billion.
Weekly unemployment claims started May on a better note, with a
18,000 decline in new application for benefits. The 365,000 new
entries filed during the week ending May 3 was about square in the
middle of the recent range and seems to suggest some leveling out
for layoffs, at least for the moment. However, hiring remains non-
existent at the moment, so those laid off may have a tough time
trying to find new employment opportunities.
The steady drumbeat of higher gasoline prices continues to crimp
enthusiasm among consumers. The ABC News/Washington Post poll of
Consumer Comfort set a new cycle low of -46 for the week ending May
4. It's a fair bet that moods measured here will continue to darken
until prices improve, but with oil cresting over $125/barrel this
week, and the "summer driving season" nearly upon us, it's not
likely to happen any time soon.
With the economic news mostly stable and price pressure fresh in
everyone's mind, there's little reason to expect any sort of strong
downturn for mortgage rates anytime soon. In fact, some slight
upward pressure is in place at the moment, and a slew of new data
is out next week covering Retail Sales, inflation, Industrial
Production and Housing. If we're approaching some form of economic
stability (or even slowing in the rate of decline) as we started
the second quarter of 2008, we should see it reflected here. If it
does indicate that, the overall FRMI should nudge a couple basis
points higher.
For more information, visit www.hsh.com.
