Economy better, but still a ways to goby Keith Gumbinger
Below is an excerpt from the latest Market Trends newsletter. Sign up and receive it in your inbox Friday evening:
Economic growth was stronger in the third quarter than the second, a welcome pickup from a truly poor period. Despite the increase, there’s no present indication that any Fed policies supporting the economy will be removed anytime soon, or that we are poised to have an economy running at a quickened pace.
The Fed’s effort to manipulate mortgage rates has so far has resulted in little more than an eighth-percentage point decline in rates. However, the Fed is in some ways fighting to keep rates low against the hoped-for outcome of its extraordinary monetary policy — a stronger economy. As such, rates are caught in a bit of a tug-of-war.
Mortgage rate rise
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 rose by five basis points (0.05 percent) to 3.76 percent, taking back all of the previous week’s minor dip and more.
Meanwhile, the FRMI’s 15-year companion moved higher by four basis points (0.04 percent) to arrive at 3.06 percent.
FHA-backed 30-year FRMs rose by three hundredths of a percentage point, as the most viable option for credit- or equity-impaired borrowers saw its average lifted to 3.33 percent. Finally, the overall average rate for 5/1 Hybrid ARMs rose by four basis points, climbing to 2.76 percent, its highest average rate since the last week of August.
Fed sees improvement
The Federal Reserve held its first policy meeting since launching QE3 last week. No policy changes were expected and none came. In the statement which accompanied the close of the meeting, the Fed noted that “economic activity has continued to expand at a moderate pace” and that “the housing sector has shown some further signs of improvement, albeit from a depressed level.”
That’s a marked change in language from as recently as August, when housing was characterized as “remains depressed.” Low mortgage rates are of course a help to the housing market, especially in terms of refinancing, but are only a contributing factor for improvement in sales.
Two percent economic growth
That the economy needs all the help it can get remains a given. Out on Friday was the advance look at third quarter GDP found a flat 2 percent rate of growth. While better than forecasts of 1.8 percent, and much better than the second quarter pace of 1.3 percent, it nonetheless is a very subdued rate of growth, and one insufficient to produce speedy declines in the unemployment rate or produce much new job growth.
The economy would need to grow at perhaps 2.6 percent to 2.8 percent to accomplish much of that.
Rates to remain stable
As we’ve noted in recent weeks, there are bright spots, an improving housing market and car sales among them, but still way too many unknown and unknowable factors for any declaration that we’re on the road to a stronger recovery.
For the most part, that means more of the same; on-going Fed intervention, low and stable mortgage and other interest rates and muted economic growth. Mortgage rates really have no place to go and are in no hurry to get there, so we’ll continue to bounce around. Even if October doesn’t build much on September overall, we will probably see a couple of basis point upward move in mortgage rates this week.