After the Fed Move, New Records for Rates, Barely

A week has passed since the Fed’s latest bold move to stimulate the economy and nurture the housing recovery, but anyone expecting a huge downturn in mortgage rates would be disappointed by the initial response. Mortgage rates did trickle lower this week, enough to step into new record low territory, but it was by just a whisker for the most popular kind of loan.

The Fed’s influence in the market should produce lower rates, but gently, and over time. We believe that the cumulative benefit of the Fed’s action to be valued at perhaps a quarter of a percentage point.  Of course, this is a moving target, since at any time it is relative to where rates would be, absent the Fed’s manipulation of the market.

Mortgage Rates Nudge Lower

HSH.com’s broad-market mortgage tracker — our weekly Fixed-Rate Mortgage Indicator (FRMI) — found that the overall average rate for 30-year fixed-rate mortgages declined by a single basis point (0.01%) to 3.82%, a new record low for the series; as well, the FRMI’s 15-year companion held at a record low of 3.10% for the week. FHA-backed 30-year FRMs downshifted by seven basis points, and the most viable option for credit- or equity-impaired borrowers dipped to a new low of 3.35%, while the overall average rate for 5/1 Hybrid ARMs finished the weekly survey at 2.70%, shedding three hundredths of a percentage point to establish a new record low.

Homebuilding is improving…

Troubled though it is, housing has been one of the brighter spots in the economy this year. Refinancing has lowered household obligations and is supporting both savings and spending, while home sales have perked up enough to produce at least some wide-ranging economic benefit.

Reflecting the improving market, the National Association of Homebuilders index of member sentiment continues to edge higher, with the reading of 40 for September the highest such value since June of 2006. Even with the continued gains, readings here below 50 indicate a sub-par climate, although considerably less so than at any time in more than six years. Sub-indexes in the report covering present single-family sales levels moved up (+4 points, to 42), but traffic at showrooms and model homes climbed just a single point to a still-weak 31. Given these minor rises, it is hard to reckon how the measure covering expectations for the next six months jumped eight points to 51, indicating actual optimism about the future, but it is an encouraging sign, regardless.

… and home sales, too

Construction and sales of new homes compete to some degree with sales of existing homes. Existing home sales increased by a stout 7.8% in August, rising to an annualized rate of 4.82 million units. This was a substantially better pace than was expected, and the rise in sales was accompanied by other encouraging news, too. Despite a 2.9% rise in listings for the month, inventory levels held at a fairly normal 6.1 months of units available, and prices continue to show signs of recovering, with August’s median home price some 9.5% above year-ago marks.