Mortgage rates still setting recordsby Keith Gumbinger
Below is an excerpt from our latest Market Trends newsletter, available Friday night in your inbox:
By the barest of margins, most mortgage rates managed to move still lower last week. There was only a light set of economic data to push them around, and with none particularly unexpected or unsettling, mortgage rates mostly drifted sideways as a result.
Mortgage rates drift sideways
HSH.com’s broad-market mortgage tracker–our weekly Fixed-Rate Mortgage Indicator (FRMI)–revealed that the overall average rate for 30-year fixed-rate mortgages declined by just a lone basis point (.01 percent), easing to a new record low of 3.85 percent.
The FRMI’s 15-year companion actually rose by a single basis point, landing at 3.15 percent, one tick above record lows seen the week prior.
Important to homebuyers and low-equity-stake refinancers, already-low FHA-backed 30-year mortgages shed another six basis points to slide to an incredible 3.42 percent, while the overall average rate for 5/1 Hybrid ARMs lost another basis point, and finished at 2.81 percent for the week, enough to again set a new low for the most popular kind of ARM.
The latest on housing
Home sales have generally benefited from low mortgage rates and improving affordability. Overall, as mortgage rates have moved lower, home sales have moved higher. However, the latest report from the Census Bureau found that sales of new homes eased a little in June, sliding by 8.4 percent when compared against an upwardly revised May figure. Even with the decline in sales, inventories of unsold homes remain at a tight 4.9 months, with just 144,000 homes built and ready for sale.
Continued forward traction in housing won’t likely happen until we see regular employment gains. Low home prices and fantastic mortgage rates mean little if you don’t have an income to make monthly payments, no matter how low they might be. We’ve seen almost no progress on that front for months, and new unemployment claims remain elevated.
Low rates at the expense of several economies
Of course, with a weak economy, there’s not much reason to expect businesses to hire or retain as many employees as they would in better times. The first quarter of 2012 sported a Gross Domestic Product with a meager 2 percent rate of growth, and the advance report for the second quarter shaved a half-percentage point off of that, coming in at 1.5 percent. Simply put, the intensification of the troubles in Europe and now Spain to a greater degree has caused a downshift in our economy. In turn, this has served to give us the record-low interest rate environment we currently have, as investors have pulled money out of riskier investments to pour it into the relative safety of U.S.-backed debt.
For our part, we’d still be happy to trade somewhat higher interest rates for an additional percentage point (or more) of economic growth. There is nothing wrong with mortgages with a 4 percent handle, which were record lows up until recently.
Fed meeting, jobs report this week
This week, there’s plenty of last of the month and first of the month data for the markets to work with and digest. That will likely result in somewhat more movement for mortgage rates than we had to contend with last week.
Market movers include the July employment report, surveys for manufacturing and service-related business activity, personal income reports, factory orders and construction spending. Did we neglect to mention there is a Federal Reserve meeting, too? It’s not expected that the Fed will announce any new strategy at the end of the affair, but you can bet that there will be plenty of discussion about it when the group meets. That said, there is always a slight possibility of a policy move, but the Fed probably wants to see if the extension of Operation Twist can do the trick before embarking on a new path.
Mortgage rates could move lower on some expression of disappointment if the Fed doesn’t move or reveal any intentions of moving sometime soon. The rest of the data will probably be mostly flat at best, and mortgage rates will probably move downward a couple basis points by the time the week comes to a close.