New Year, Same Low Rates (for most)

January 2, 2009 -- Mortgage rates were basically unchanged this week, which included the first days of 2009. Thinly traded markets, vacations and holidays being what they are, a lack of any real direction is pretty typical.

Overall, the average 30-year fixed rate mortgage nudged a lone basis point higher. HSH's Fixed-Rate Mortgage Indicator FRMI rose to 5.89%. The overall average for the 5/1 Hybrid ARM slipped back by fourteen basis points, landing at 5.80% for the week, the lowest such average since February 2008.

Conforming mortgage rates shed three basis points, easing to 5.28%, while 30-year fixed-rate jumbo mortgages moved back to a flat 7% to start the year -- not that they managed to get much below it in recent weeks.

Now that investors have closed the books on 2008, we may start to see some money shift away from low-yielding but highly secure investments, especially Treasuries. With a new administration coming in, new opportunities may present themselves as the government moves 'stimulus' off the drawing board and into the economy. However, as long as the economy remains in difficult straits, it is a fair bet that not all that much risk-taking will come anytime soon.

Along with struggling consumers, the manufacturing sector remains in quite bad shape. The latest survey from the Institute of Supply Management (ISM) found very little activity among its members, with their December index sporting a reading of 32.4, the lowest since the 1980 recession. This was even slightly below the 35.5 level noted for November. However, inflation -- so worrisome just a few short months ago -- has completely vanished from the processing stream. The 'prices paid' subindex from the ISM had a value of 18 -- the lowest monthly reading since 1949.

That ISM was a flattening-out of sorts, albeit at a very low level. Much the same was seen in regional outlooks of factory health. A local purchasing manager's group in New York noted virtually no change in activity from November to December, still holding at low levels, and a Chicago-area group reported a slight whisper of improvement. In the Kansas City Federal Reserve district, a somewhat better grade of lousy conditions was reported, as their index rose from -31 in November to -21 in December, still contracting but thankfully at a lesser rate.

Consumer moods have remained quite bleak over the past few months, but the downturn in December's Consumer Confidence index was unexpectedly weak. The Conference Board reported a December value of 38.0, below expectations and a downshift from November's 44.9 level. Other surveys, such as the one from the University of Michigan, have showed some firming of attitudes. As an example, the weekly ABC News/Washington Post poll of Consumer Comfort shed a single tick during the week ending December 28, landing at -49, but has more or less been steady over the past month, albeit at weak levels. Perhaps the Conference Board's indicator leans more heavily on employment for weighting purposes, and job losses have been largely increasing of late.

That's not quite true, though, if you can believe the latest weekly unemployment claims data. During the week ending December 27, a drop in new claims of some 94,000 happened, so the number of new applications for benefits fell to 492,000, the lowest figure in months. Rather than some new spate of hiring (or, more properly, a diminishing of firing) the figure is probably distorted by seasonal adjustment problems related to the Christmas holiday week.

Next week is the first full one of the new year. If previous years are any indications we should see a flare higher in mortgage-related activity, a resumption of more-volatile markets, and probably, slightly higher interest rates as investors begin to reposition for the period just ahead. If the 10-year Treasury is any indication, rates may tick a little higher early next week.

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