Mortgage Rates Stable With Improvement In Borrowing Conditions
Manufacturing continues to lead the economy away from recession, but the recovery continues to be a slow process, one which doesn't appear to be broadening or deepening very quickly. On the other hand, a troubled, sluggish economy is good news for mortgage borrowers in the sense that interest rates will continue to remain low while soft economic conditions persist.
This week, the overall average for 30-year fixed-rate mortgages tracked by HSH.com's FRMI was unchanged from last week at 5.42%. The FRMI includes conforming, jumbo and the GSE's "high-limit" conforming products in its calculation. It also has a Hybrid 5/1 ARM counterpart, which increased by one basis points during the latest survey cycle, landing at 4.60% for the week.
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The latest Senior Loan Officer survey of lending conditions, released this week, revealed some fair signals that the tightening of credit conditions were starting to come to an end. For the first time since the downturn began, a net percentage of banks eased borrowing terms for Commercial and Industrial loan clients, suggesting that market conditions for these kinds of borrowers has improved considerably. Four quarters ago, over 64% of banks were still tightening, so this is a fairly rapid - and welcome - improvement.
That's not quite the case for mortgage borrowers, at least just yet. Conditions are still tightening, according to the survey, but the 13.2% of respondents reporting tougher terms was the smallest such increase since the third quarter of 2007. Since underwriting conditions need to stop getting tighter before they can be loosened, this is a good sign that in the not-too-distant future more potential homebuyers will be able to (re)join the marketplace, at least at the margins. With plenty of unsold inventory available and lots more expected to hit the markets in 2010 in the form of short sales and foreclosures, the market will need every potential borrower it can get just to produce stability in housing markets.
Construction Spending declined in December; while easing by 1.2% overall, outlays were dragged down by a 2.8% decline in spending on new residential projects, but also exacerbated by a 1.2% dip in public outlays. More and easier credit (as above) might help to develop more housing demand; more demand is needed to get builders building again. Meanwhile, cash-strapped state and local governments don't seem to be seeing any "shovel-ready" stimulus money for repairing roads and bridges.
Factory activity continues to pave the way for the recovery to get a better foothold. The Institute for Supply Management's gauge of factory activity found further gains in January, with their indicator putting up a sixth straight month of gains. The 58.4 mark for the indicator was the highest reading since 2004, and is at a solidly expanding level (the ISM survey uses 50 as a breakeven level between expansion and contraction). Production, orders, and employment all rose, as did the measure of price pressures, a inflation signal which bears watching.
Given the January reading from the ISM above, it's unsurprising that the measure of Factory Orders for December bounced higher by a full 1%, with that coming on the heels of an even larger November lift, a revised gain of 2.2%. At least some of that demand is coming from motor vehicle production, which has firmed somewhat after 2009's plummet and taxpayer-fueled revival. According to AutoData, January vehicle sales rang in at an annualized 10.8 million cars and light trucks sold, a little less than was forecast and a slight easing from the 11.2M notched in December. Given current economic conditions, it's hard to see how auto sales will generate much upward momentum; that probably won't happen until job and income growth improves.
Personal Incomes did move 0.4% higher in December, but wages only managed a bare 0.1% gain for the month, with the rest attributed to other gains. With labor markets so weak, the ability to extract or be provide a raise in pay is also weak, but this "resource slack" is one of the keys to keeping inflation at bay even as it does the same to economic growth. Spending outlays rose by 0.2% during the month, and the difference between those to figures pressed the nation's rate of savings back upward to 4.8%. Americans (at least those who can) are clearly banking as much as they can right now.
Friday's report on Consumer Credit bears this out to a degree. Total consumer borrowing fell by $1.8 billion, while November's very large drop was revised downward further to $21.8 billion. December marked the 11th straight month of declines, and 2009's consumer debt balance fell by 4% to $2.46 trillion from $2.56 trillion in 2008. The Fed also reported that revolving credit balances, including credit cards, fell by $8.5 billion. Revolving debt, which has fallen for 15 consecutive months, is still falling sharply; Americans are foregoing credit and paying cash for their purchases.
The ISM also measures trends at non-manufacturing (service) businesses, too. While not nearly as robust at its factory counterpart, the Service business index did manage to move a little bit further into the black during January, putting up a value of 50.5 for the month. This indicator has danced above and below breakeven for the past five months and hasn't yet established any kind of regular pattern.
Our Statistical Release features charts and graphs
for 11 products, including Hybrid ARMs.
Our state-by-state statistics are now here.
Current Adjustable Rate Mortgage (ARM) Indexes
|
| Index |
For the Week Ending |
Previous Year |
|
Jan 29 |
Jan 01 |
Jan 30 |
| 6-Mo. TCM |
0.15% |
0.20% |
0.34% |
| 1-Yr. TCM |
0.31% |
0.47% |
0.49% |
| 3-Yr. TCM |
1.42% |
1.66% |
1.25% |
| 5-Yr. TCM |
2.39% |
2.64% |
1.74% |
| FHFB NMCR |
4.92% |
5.01% |
6.18% |
| SAIF 11th Dist. COF |
1.828% |
2.094% |
3.155% |
| HSH Nat'l Avg. Offer Rate |
5.42% |
5.59% |
5.86% |
|
ARM indexes, APOR rates, Libor, usury ceilings, & more -- all available from ARMindexes.com.
Email and webservice delivery are available.
Sources: FRB, OTS, HSH Associates. |
|
Rising worker Productivity is generally a good thing, since workers who are more productive can receive higher wages and such without affecting a company's bottom line or causing a corresponding increase in wage-led inflationary pressures. Unfortunately, it also means that businesses can meet output goals without adding new or re-hiring old employees, and that's bad news for those seeking employment. The 6.2% lift in worker output in 2009's fourth quarter was only slightly less than the 7.2% figure for the third quarter. The increase in output per hour also means that labor costs are declining on a per-unit-produced basis, helping to promote profitability. At some point, if these conditions persist, a worker's ability to expand his or her output will slow, and a new employee will need to be added to increase production. Here's hoping that day is growing closer.
This doesn't yet seem to be the case. The outplacement firm of Challenger, Gray and Christmas noted some 71,482 announced layoffs in January, an uptick in what had previously been a diminishing pattern, with the number roughly equivalent to that seen in August 2009. It suggests that improvement in the labor market has again slowed, not the kind of news a battered populace wants to hear.
However, that evidence is borne out by a steady increase in applications for unemployment benefits during January. For the week ending January 30, some 480,000 new claims were filed, the highest figure since the second week of December. We had been expecting the number to settle close to 450,000 by now, but that hasn't been the case.
With productivity high, and amid a very uncertain political climate, businesses don't need to add workers very quickly, if at all. At this point, the uncertainty surrounding health insurance reform and tax structures -- including a plethora of proposed tax hikes -- is holding back hiring.
Still, there are some signs that the employment situation may finally be in line for a little improvement. Payroll employment declined by a net 20,000 in December, when a decrease in construction jobs was partially offset by an uptick in manufacturing jobs, the first since 2006. That was a notable improvement from the 150,000 (revised) job losses in November. Despite that, the overall unemployment rate fell to 9.70% because the civilian employment population (those actively looking for work) increased by 111,000 people, the first increase in several months. It's a vanishingly small offset to the 8.4 million jobs lost since the recession began, but still, it's welcome news.
Mortgage rates appear to be holding at what seems to be their new bottoms. Even difficult stock markets at times this week failed to produce lower rates, and with a sort of "floor" in place, there seems to be little room for improvement. That being the case, rates have more likelihood of rising slightly than falling next week.
It's never too late to look ahead. If you've got a couple of minutes, you should check out our 2010 Outlook for Mortgage Markets and Rates. It covers what we think are the ten most important considerations for the market next year.
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