Mortgage Rates Fall as Government Shutdown Rolls On – Market Update

The government shutdown is on Day 24 as of this writing and surpassing records for all the wrong reasons. Normally, I don’t like to start this post with bad news, but it’s the big thing people are talking about.

We’ll get to some of the news on that below along with other things investors are paying attention to.

Headline News

International Trade

Due to the government shutdown, this report didn’t come out as scheduled last Tuesday. I would assume we’ll get the data eventually when the government reopens, but we’ll keep an eye on it.

Quicken Loans Home Price Perception Index (HPPI)

According to Quicken Loans data, homeowners inflated the value of their homes by 0.45% in comparison to the actual appraisal values, a widening of the gap by 0.09% when compared to November. However, since we’ve been keeping track of this metric, the difference is still very low.

In terms of regional data, homeowners and appraisers were closest to agreement in the West, where homes were overvalued by a difference of just 0.34%. The West was followed by the South and Midwest where homeowner estimates were high by 0.42% and 0.48%, respectively. The Northeast lagged behind the others, with homeowners off by 0.58%.

In individual cities, the Boston area had the hottest market. Appraisals came in 2.98% above homeowner expectations. Chicago homeowners, meanwhile, have the most unrealistic opinion of home value, being 1.96% high in their estimates. Miami homeowners are apparently soaking up the good vibes of the sun down there. They’re closest to appraisers in terms of home valuations, high in their estimates by just 0.17%.

Quicken Loans Home Value Index (HVI)

Although the difference between homeowner and appraiser opinions was wider in December, homeowners do have good reason for that optimism. Appraised values rose 0.79% to end the year and were up 5.15% annually.

When looked at regionally, home values were up 0.54% in the South and had risen 4.86% yearly. Meanwhile, homeowners in the Northeast saw values rise 0.52% and 4.41% on the year. In Western states, values increase 0.38% to and the year, finishing 2018 up 5.98%. Finally, Midwestern homes increased in value 0.37% on the month and 4.88% annually.

MBA Mortgage Applications

There’s been recent uncertainty in both the operation of the government and the health of the stock market, and mortgage rates are often the beneficiary of this uncertainty, as bonds, including those for mortgages, are considered a safer investment. The average interest rate on a 30-year-fixed conforming mortgage was down 10 basis points to 4.74%.

As you might expect, this had a positive impact and implications with overall applications being up 23.5% courtesy of a 17% increase in purchase applications and a 35% uptick in applications to refinance. The share of applications accounted for by those looking to refinance was up 3.1% to come in at 45.8%, the highest proportion of refinance applications in nearly a year.

Jobless Claims

Initial jobless claims fell 17,000 last week to 216,000. The four-week average was up slightly, rising 2,500 to 221,750.

Claims among federal employees did rise 3,831 to 4,750. We’ll be watching this number to see what happens as the government shutdown moves forward.

Continuing claims were down 28,000 to 1.722 million. The four-week average was up 15,000 to 1.721 million. However, it’s thought that this is mostly the result of a big rise in mid-December.

Consumer Price Index (CPI)

Prices actually dropped 0.1% in December and everything 1.9% on the year. Much of this is being driven by lower energy prices as inflation rose 0.2% and 2.2% annually when food and energy were taken out.

Energy seems like as good a place as any to start. Prices were down 3.5% overall, driven by a 7.5% downturn in gas prices. Meanwhile, the cost for transport was down as there was a 1.5% downturn in airfare prices. Vehicle insurance was down 0.2% as well. Closely tracked along with energy, food prices were up 0.4%, but they’ve only gone up 1.6% annually.

The cost for housing was up 0.4% on the month despite rent and owners’ equivalent rent – a metric that helps represent the cost of homeownership – both being up only 0.2%. The costs of lodging were up 2.7%.

Meanwhile, medical costs were up 0.3%. The cost for doctor services was flat on the month and up only 0.6% in 2018. Hospital care rose 0.5% on the month and was up 3.7% on the year.

Other readings of note included apparel costs which were flat on the month along with yet another price drop for wireless phone services where prices were down 3.2% on the year.

Mortgage Rates

Before we get into rates, this is probably the ideal place to discuss the effects of the ongoing government shutdown on mortgages. We did this a couple of weeks ago, but some things have changed since the shutdown has gone on.

• Depending on where you’re at in the approval process for your USDA loan, you may be impacted. If your closing date needs to be moved, we’ll be in contact.
• Tax transcripts may now be ordered, but we may still request further documentation from you while the IRS works its way through the backlog.
• Lenders can’t order verifications of employment for government employees.
• The National Flood Insurance Program (NFIP) has decided to let people purchase and renew flood insurance policies again.
• If you need a payoff or title-related subordination from a government agency, only the Department of Housing and Urban Development (HUD) is processing those at this time.
• As of now, FHA and VA loans are unaffected.

If you’re currently in the process of getting a loan and worried the government shutdown might affect you, be assured our team will keep you updated if there are any concerns. That said, if you have any questions about a loan in process, you can always give us a call at (800) 863-4332.

If you’re furloughed or not receiving a check due to the government shutdown, we understand this is a difficult time. We’re here to help, as we would be with any crisis faced by our clients. If you think you’re going to have trouble making your mortgage payment, we encourage you to reach out to us at (800) 508-0944.

There’s no other way to do this, so I’m going to make a hard transition into mortgage rates now. Unfortunately, when there’s uncertainty in the markets or in the operations of a government, money tends to flood the bond market. Since that’s where mortgages are traded, mortgage rates often go down as more people buy mortgage-backed securities. It’s a case of being a beneficiary of bad news.

Rates continue to fall. As a result, whether in the market to buy or refinance, it’s a great time to lock your rate.

The average rate on a 30-year-fixed conforming mortgage fell 6 basis points to 4.45% with 0.5 points in fees. This is up from 3.99% a year ago.

Taking a look at shorter terms, the average rate on a 15-year fixed mortgage with 0.4 points was down 10 basis points to 3.89%. Last year, the rate was 3.44%.

Finally, the average rate on a 5-year, treasury-indexed adjustable rate mortgage (ARM) with 0.3 points was 3.83%, down 15 basis points on the week and up from 3.46% last year.

Stock Market

All stock indexes had gains of better than 2% for the week. However, they were down slightly Friday as investors worried about the impact of the ongoing government shutdown as well as a slowdown in the growth of the Chinese economy.

The Dow Jones Industrial Average was up 2.4% on the week despite being down 5.97 points Friday to close at 23,995.95. Meanwhile, the S&P 500 finished Friday at 6,971.48, down 14.59 points, but up 3.45% on a weekly basis. Finally, the Nasdaq finished the week down just 0.38 points at 2,596.26, rising 2.54% on the week.

The Week Ahead

As with last week, these are the releases that are scheduled. Some of the data that usually comes from the federal government could be delayed if the government doesn’t reopen fully by the time reports are to be released.

Tuesday, January 15

Producer Price Index (PPI) (8:30 a.m. ET) – The Producer Price Index measures the average change over time in prices received by domestic producers for the sale of goods and services.

Wednesday, January 16

MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.

Retail Sales (8:30 a.m. ET) – Retail sales measure total receipts from stores selling merchandise and related services to final consumers. Sales are measured by retail and food service stores. Data is collected from the Monthly Retail Trade Survey conducted by the U.S. Census Bureau.

Housing Market Index (10:00 a.m. ET) – The National Association of Home Builders produces a housing market index based on a survey in which respondents from the organization are asked to rate the general economy and housing market conditions. The index is a weighted average of separate diffusion indexes, including present sales of new homes, sales of new homes expected in the next 6 months and traffic of prospective buyers in new homes.

Thursday, January 17

Housing Starts (8:30 a.m. ET) – A housing start is registered when the construction of a new residential building begins. The start of construction is defined as the beginning of excavation of the foundation for the building.

Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The 4-week moving average of new claims smooths out weekly volatility.

Friday, January 18

Industrial Production (9:15 a.m. ET) – The Federal Reserve’s monthly index of industrial production – and the related capacity indexes and capacity utilization rates – covers manufacturing, mining, and electric and gas utilities.

Consumer Sentiment (10:00 a.m. ET) – The University of Michigan’s Consumer Survey Center questions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending.

There’s a fair amount of economic data on the docket for this week. We’ll cover anything that actually gets reported in next Market Update which will be on Tuesday next week as Quicken Loans is closed for the observance of Martin Luther King Day on Monday.

If you’re not really all that enthused to read about mortgage rates and economic data on a Monday afternoon, it’s completely understandable. Not to worry. If you subscribe to the Quicken Loans Zing Blog below, we’ve got plenty more home, money and lifestyle content that we would love to share with you. As we honor MLK next week, check out this blog post to see what you know about the civil rights leader.

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