Mortgage Rates Tick Higher Ahead of Jobs Data. 4.50% Floor is Firm
Benchmark Treasury rates rose yesterday as fixed income investors continued to take profits following the "flight to safety" rally that took place after the Dubai story hit news wires last Wednesday. Consequently, mortgage rates suffered as prices of mortgage backed securities moved significantly lower. While widespread reprices for the worse were not seen, yesterday's weakness has carried over into today and lender rate sheets reflect it.
Economic data came out all at once this morning.
We'll start with weekly jobless claims. This data totals the number of Americans who filed for first time unemployment benefits in the prior week. Included within this report is continuing claims, which totals the number of Americans who continue to file for benefits due toan inability to land a new job.
The U.S. Department of Labor reported that first time claims for the week ending November 28 fell for the fifth consecutive week, this time by 5000 to 457,000, which beat economists estimates of 480,000. This is the lowest level of claims since September of 2008. Continuing claims rose by 28,000 to 5.47 million, also beating estimates of 5.49 million. Slightly offsetting this positive data is the fact that this report was for the holiday shortened week of Thanksgiving. Additionally, the number of Americans receiving extended benefits under Federal programs, which are not counted in the initial or continuing claims data, surged 323,000 to 4.46 million. The pace of layoffs and firings is definitely easing, which could indicate a better than expected Employment situation report tomorrow, but it is still difficult to find a new job. AQ adds that he is skeptical of new hiring because of the surge in productivity. If firms are currently operating efficiently with their current resources, they are not likely to hire more labor unless there is a surge in demand.
Speaking of Productivy....
The Labor Department reported on revised Productivity and Costs for the third quarter. Productivity, which measure how efficient our labor force is at producing our nation’s good and services, was revised lower from 9.5% to 8.1% falling below expectations. This shows that our labor force is not as productive as first reported which, if contnues, could indicate that firms will be more willing to hire. On the inflation front, unit labor costs, the cost of producing each unit of output, was also revised worse from the first reported reading of -5.2% to -2.5%. This implies the cost to produce goods did not decline by as much as first reported.
The final report of the day provided a look into the strength of the non-manufacturing sector of our economy...the ISM Non Manufacturing index. This data is a survey of approximately 400 firms including agriculture, mining, construction, retail, etc… on their outlook for growth. Readings above 50 indicate expanding or improving conditions while readings below 50 indicate contraction. Last month’s survey came in at 50.6 and economists surveyed expected continued improving conditions with a 52.0 reading. The actual report indicated the non manufacturing sector of our economy has taken a turn for the worse with the index dropping to 48.7. Following the release of this worse than expected economic data, the stock market moved lower allowing some money to flow into MBS which moved them off the lows of the day.
Currently Federal Reserve Chairman Ben Bernanke is on Capitol Hill in front of the Senate Banking Committee for his reconfirmation hearing. If any tape bombs develop, AQ and Matt will also cover on the MBS Commentary blog.
Reports from fellow mortgage professionals indicate rate sheet rebate to be WORSE this morning. The par 30 year conventional rate mortgage remains in the 4.625% to 4.875% range for well qualified consumers. To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are planning to access the equity in your home, you should expect either a higher interest rate or additional closing costs.
Tomorrow we get the most important economic report, the Employment Situation. If this data indicates fewer job losses than expected, mortgage rates could rise very quickly. If worse than expected we could see an improvement to rates; however, I am going to continue to advise locking because lenders have proven themselves reluctant to pass along lower mortgage rates once 4.50% is reached, which we saw earlier this week. If you can lock today at 4.625%, why risk floating if lenders won’t offer rates below 4.50%? Not much to gain but there is a potential for a quick and large move higher with rates, so much to lose.
Anyone care to predict tomorrow’s nonfarm payrolls? Expectations are for a loss of 100,000 jobs and unemployment rate of 10.2%.
If you are planning to secure a mortgage using a FHA loan, get prepared for tougher qualifying guidelines. They are planning to raise the minimum credit score, reduce seller concessions and increase premiums and downpayments. To read more, check out the MND STORY.