Market Forecast: Mortgage Apps, Jobless Claims, and Consumer Credit

Blog posted On February 04, 2019

Last week, the Federal Open Market Committee announced it would be slowing down on gradual interest rate hikes over the course of the next year.  Mortgage rates reacted by trending slightly downward.  This week, the only significant housing report will be the weekly mortgage application survey, scheduled for release on Wednesday.  Other market-moving reports coming up include the weekly jobless claims report and consumer credit.

The Mortgage Bankers Association (MBA) weekly mortgage application survey tracks week to week changes in new purchase and refinance mortgage applications.  After a slow December, the mortgage activity resurged in January, with home buyers and homeowners taking advantage of lower mortgage rates.  For the week ending 1/25, new purchase applications were down 2.0% and refinance applications dropped 6.0% for a composite decrease of 3.0%.  Joel Kan, MBA’s vice president of industry surveys and forecasts, predicts, “Despite ongoing supply and affordability constraints, the healthy job market and underlying demographic fundamentals both point to gradual purchase growth in the coming months.”

The weekly jobless claims report tracks week to week changes in new and continuing unemployment claims.  The unemployment rate has been historically low for much of the past few years.  After hitting a record low the previous week, initial jobless claims increased to a seasonally adjusted annual rate of 253,000, for the week ending 1/26.  Continuing claims also increased to a level of 1.78 million.  Despite the week-to-week increase, Federal Reserve Chair Jerome Powell spoke positively about the US labor market. 

Consumer credit counts total outstanding consumer debt segmented by revolving and nonrevolving credit.  Revolving credit includes monthly debt like credit card debt and nonrevolving credit included longer-term debt like student loans and car loans but not mortgage debt.  In November, total outstanding consumer credit increased to a seasonally adjusted $3.98 trillion.  Revolving credit increased 5.5% month-over-month and nonrevolving credit was up 7.1% month-over-month.  Healthy expansion in consumer credit signals consumers are borrowing because they are confident they will be able to repay debt.  Too much consumer credit can be a sign of economic stress, with consumer borrowing to offset lack of wage growth.  

Following the Fed’s announcement to slow down its interest rate hike pace, average mortgage rates trended downward.  Numerous factors influence a particular borrower’s mortgage interest rate. However, in addition to the federal benchmark interest rate.  A home buyer or homeowner interested in a new purchase or refinance should get prequalified with a mortgage lender first to get a more accurate assessment of what their mortgage rate will look like. 

Sources: CNBC, Econoday, MarketWatch, MarketWatch, Mortgage News Daily, Reuters