Economic First Look: Those Rising Mortgage Rates

 | Jun 22, 2013 | 10:30 AM EDT  | Comments
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Monday

  • Chicago Federal Reserve National Activity Index, 8:30 a.m. EDT
  • Dallas Fed Manufacturing Survey, 10:30 a.m.
  • Richard Fisher, President of the Dallas Fed (non-voter), speaks, 1 p.m.

Tuesday

  • Durable Goods Orders, 8:30 a.m.
  • S&P Case-Shiller Home Price Index, 9 a.m.
  • New Home Sales, 10 a.m.
  • Consumer Confidence, 10 a.m.
  • Richmond Fed Manufacturing Index, 10 a.m.

Wednesday

  • Narayana Kocherlakota, President of the Minneapolis Fed (non-voter), speaks in Seoul, 1:55 a.m.
  • Gross Domestic Product (third estimate for the first quarter), 8:30 a.m.
  • Corporate Profits (released with GDP report), 8:30 a.m.
  • Energy Information Administration Petroleum Status Report, 10:30 a.m.

Thursday

  • Jobless Claims, 8:30 a.m.
  • Personal Income and Outlays, 8:30 a.m.
  • Pending Home Sales Index, 10:00 a.m.
  • Jerome Powell, Fed Board of Governors (voter), speaks, 10:30 a.m.
  • Kansas City Fed Manufacturing Index, 11 a.m.
  • Dennis Lockhart, President of the Atlanta Fed (non-voter), speaks, 12:30 p.m.

Friday

  • Jeffrey Lacker, President of the Richmond Fed (non-voter), speaks, 9:15 a.m.
  • Chicago PMI, 9:45 a.m.
  • Consumer Sentiment (University of Michigan measure), 9:55 a.m.
  • Sandra Pianalto, President of the Cleveland Fed (non-voter), speaks, 12 p.m.
  • John Williams, President of the San Francisco Fed (non-voter), speaks, 3:30 p.m.

 

This is shaping up as an incredibly busy week! On tap are lots of important data on manufacturing, housing, consumer incomes and spending and consumer confidence. Also scheduled are reports on broad economic conditions via the Chicago Fed National Activity Index, a composite of 85 other data points (and my favorite indicator, by the way) as well as the third estimate of first-quarter gross domestic product. A number of Federal Reserve speakers are also scheduled for this week -- though note that only Jerome Powell, who is a member of the Board of Governors, currently has a vote on the Federal Open Market Committee.

Before we get to our focus on housing -- important to consider, given the increase in mortgage rates in recent periods -- let's take a look at some of the other data.

For manufacturing, we'll have durable goods data Tuesday and the Chicago purchasing managers index Friday. We'll also have some regional Fed manufacturing surveys -- which are not extensively followed, by the way. The two main regional Fed surveys to watch have already been released, and I've written about each of them recently: the Empire State Survey and the Philadelphia Fed Survey. Industrial production is another metric I recently covered, and it gave some indication as to manufacturing conditions in May.

For the personal income and outlays report, due for release Thursday, consider data that will flow into that report -- consumer incomes and the wealth effect and retail sales. The report, of course, also includes other data not yet previously reported.

Then there are Fed speakers to consider. We've already heard from some of them, as I've recently written here and here -- though those columns also cover Fed speakers who are not scheduled to speak this week.

Now, let's move on to housing. Two of the timelier indicators on home sales are due out this week. Note that the existing-home-sales report, which I covered here, measures a home as sold when the contract closes, which can occur a month or two after a contract is signed. The National Association of Realtors, which publishes that report, attempts to compensate for that delay through its pending-home-sales Index, which measures a home as sold when the contract is signed -- and the new-home-sales report, which is published by the U.S. Census Bureau, also counts a home as sold when the contract is signed. When we're looking at signed contracts, we can get a sense of where the market is more recently, rather than a few months ago.

That is important, because mortgage rates have been going up recently -- and we can get a sense of how consumers are reacting by looking at the weekly mortgage-application data from the Mortgage Bankers Association. Here, we saw a 3% decline from last week in the seasonally adjusted purchase index of the number of new mortgage applications. The unadjusted purchase index fell 4% vs. the previous week, but it was 12% higher than the same week one year earlier.

As for those rates, this week the MBA reported a climb to 4.17% in the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less). That's the highest rate since March 2012. Different data published this week says these mortgage rates are now 3.93%, up from 3.35% in early May -- and are at the highest level since April 2012 -- per a Freddie Mac survey of 125 lenders.

Neither of these two data series includes any potential effects from the spike in U.S. Treasury yields in the past week, as they both reflect surveys of lenders conducted in the previous week. In less-official data, though, Bankrate.com reported 30-year fixed mortgage rates at 4.24% currently, up from 4.02% last week.

Of course, the home-sales data out this week reflect transactions done in May, when mortgage rates had just begun their recent ascent. So the numbers won't reflect the effects of the forthcoming higher mortgage rates.

But, beyond this week's reports, there is some disagreement among economists regarding just how much higher mortgage rates might hurt home sales or home prices. After all, many purchases are done with all cash, particularly from institutional and other investors. That makes mortgage rates immaterial. Inventories are tight, as well, sparking a bit of demand to act quickly on some properties. Rising mortgage rates may amplify this urgency, even prompting an increase in sales now if consumers expect mortgage rates to be even higher later.

Still, this basic fact remains: For those homebuyers financing a house with a mortgage, the higher the interest rate, the higher the monthly payments -- and the less house one can afford, given mortgage underwriting standards. We will just have to wait for data in coming months to reach a conclusion.

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