Mortgage Rates Mostly Unchanged

January 19, 2009 – 3:21 pm

January 19, 2009 — Even with headlines touting mortgage rates at historically low levels, regular observers know that there was little change in mortgage rates this week. Conforming mortgage rates were said to have fallen below an average of 5%, at least according to Freddie Mac and the MBAA. Of course, that average has been hovering near the 5% mark in recent weeks, and whenever the average is near a "psychologically important" level it is always possible to break that level simply by paying more points or fees up front. Freddie’s average rate assumes that the borrower is paying 0.7 points; the MBAA report sported an interest rate which would see the borrower paying 1.2 points. The higher the points and fees charged, the lower the interest rate.

Our own daily and weekly figures didn’t break the 5% mark. We were close, though, and any borrower wishing to pony up more money up front could have easily obtained a rate below 5%.

For the week, all together, we had an average of 5.11% + 0.28 points all told… and a final weekly "zero points" average of 5.17%. If we gathered prices at Freddie’s 0.7-point level we certainly also would have been below 5% this week, and well below with the MBAA’s 1.2-point statistic.

The differing methodology produces slightly different results, and regardless of any "psychological" effect, there is scant difference between the interest rates of the 5.01% Freddie reported last week and the 4.96% figure this week.

While we naturally have conforming-rate averages, we also have jumbo and so-called ‘agency jumbo’ averages too (among others). All told, these figure into an indicator we call the FRMI (Fixed-Rate Mortgage Indicator), which is reflective of the overall cost of mortgage money in the market.

Fixed-Rate Mortgage Indicator (which, we remind you, is inclusive of conforming, jumbo and ‘expanded conforming’ interest rates) slipped by just 6 basis points, landing at an average 5.66% — and all of that influence came from declining jumbo mortgage rates this week, not conforming.

We even track certain FHA rates for interested parties.

The November and December economic data continue to trickle out and are collectively living up (or down) to awful expectations. As an example, Retail Sales declined by better than two times the expected amount, easing by 2.7% during a month characterized by huge discounts and closed wallets.

Sales have been sliding for five months now, and while the December decline wasn’t the biggest of the lot, it did happen during the most important period for retailers, when a sizable percentage of the year’s profits are made. Excluding auto and gasoline sale still left a 1.5% decline, but the pain was spread around to all retail areas, regardless.

Falling prices are evident everywhere, but there doesn’t seem to be a significant risk of actual deflation in the economy, at least not yet.

Prices for goods destined for import fell by 4.7% during December, slightly less than expected, while goods destined for other shores saw aggregate reductions of 2.3%. Of course, the influence of collapsing oil and commodities prices are largely the cause for the price declines of imports, but even excluding them left a decline for the month of 1.1%.

Those falling costs of materials and products of course influences our own price pressures domestically, but also serves to influence our imbalance of trade with other nations. That trade deficit declined by a nearly a whopping $17 billion in November, as the value of imports into the US slipped by 12% while exports fell by a lesser 5.8%. The reduction in the value of petroleum imports alone accounted for nearly $13B of the total, but a need for fewer goods amid growing stockpiles accounts for the rest.

Prices here are sliding quickly as well. The Producer Price Index shed 1.9% during December, a somewhat smaller decline in costs than in November, but exclusive of volatile food and energy costs, prices actually firmed by 0.2% for the month. That was mostly the case with the Consumer Price Index too, which eased by 0.7% for December while its ‘core’ rate remained unchanged for the period. The decline in inflation pressures have been remarkable over the last few months, with the ‘core’ CPI now falling by 0.1% over the past year, when as recently as July 08 prices were climbing at a stout 5.5% annual rate. Prices all around are cooling, and indications from upstream processes indicate that this should be the case going forward for a while.

Looking back to November, we can see the slowing of demand. Collectively, business inventories managed to decline by 0.7% during the month, but sales fell far faster, and the measure of inventory levels relative to the present sales pace moved to multi-year highs. With plenty of inventory still on shelves, manufacturers won’t see many new orders coming their way anytime soon.

That being the case, the slump in Industrial Production for December was to be expected. The 2% decline was double the forecast though, with the biggest decline (-2.3%) coming in the manufacturing sector. Mining concerns chipped in with a 1.6% decline and even utility output slipped by 0.1% for the month. With nothing to produce, more of the nation’s factory floors stood idle during the month, with overall capacity utilization dipping to 73.6%, and manufacturing down to a very soft 70.1% level.

In the first non-holiday-distorted reading of the year, new claims for unemployment benefits ticked upward again, landing at 524,000 for the week ending January 10. All in all, that qualifies as "not bad" in that it would be the best non-holiday reading since late November. However, it still qualifies as terrible in its own right even if improved relative to the recent trend.

That’s not something you can say about the weekly ABC News/Washington Post poll of Consumer Comfort, which put in a third week at -49, near but just above record lows. If anything, this indicator has been largely flat for the last four weeks. While that indicator holds steady, moods measured by the University of Michigan Survey of Consumers nudged higher in the preliminary January reading, rising to 61.9 so far this month, up from December’s 60.1 mark and still moving in the right direction after November’s 55.3 nadir.

Amid all this, it’s hard to find things to be optimistic about, but low mortgage rates are serving to produce enthusiasm in at least one small (formerly very large) corner of the economy. Refinance activity remains strong and we are confident that at least some increase in home sales activity will occur as we move forward. While a refinance decision can be a near-instantaneous one, the process of deciding to buy a home — shopping and finding one, getting a contract for purchase for sale executed, and a mortgage secured — can take weeks if not months, so the impact of low rates isn’t as immediate to this market… but it does provide at least some of the impetus to move in that direction.

Mortgage rates have been pretty stable over the past couple of weeks, and there seems to be nothing on the near-term horizon which will break that flat demeanor. Figure little if any change next week.