How Did The Employment Report Affect Mortgage Rates?
Mortgage rates continued to march upward yesterday as fixed income investors extended profit taking strategies and set up positions for the release of Non-Farm Payrolls data today. As a reminder, when mortgage-backed securities prices move lower, lenders are forced to offer higher mortgage rates. If MBS prices move higher, lenders can offer lower mortgage rates because they can sell loans their pipeline of loans for a greater price.
And now for the main event...
The U.S. Department of Labor released the monthly Employment Situation Report this morning. This data provides the market with four measures on the the health of the labor market.
1. The number of jobs lost or created from the prior month. Last month showed that our economy shed 190,000 jobs.
2. The official unemployment rate, which hit a 26 year high of 10.2% last month.
3. The average work week, which was 33.0 hours last month. If the average work week increases, that would indicate the average worker making more money due to more hours worked. With the additional earnings, the worker now has more money to spend into the economy which is positive for stocks.
4. Average hourly earnings, which shows us if hourly earnings are increasing or decreasing from the prior month.
To put it simply, this month's jobs report was MUCH BETTER THAN EXPECTED.
In November, our labor market lost only 11,000 jobs! Economists were expecting 130,000 cuts. See what I mean by MUCH BETTER THAN EXPECTED?
Here is a table summarizing the job cuts. Notice less construction jobs were lost, but more real estate jobs were cut. Lastly, something AQ has been talking about recently, popped up in the report. TEMPORARY HIRING. READ MORE
This is the fewest job losses since December 2007, when the recession officially began. Adding more optimism were revisions to the previous two reports. The October NFP job loss number was cut from -190,000 to -111,000 and the September report was trimmed from -219,000 to -139,000. That is 159,000 less job cuts!
The official unemployment rate also beat expectations, moving lower from 10.2% to 10.0%.
The average work week grew to 33.2 hours from 33.0 last month.
The only data not beating expectations was average hourly earnings which only posted a 0.1% increase.
Today’s report is great news for our economy....unfortunately great news for the economy is better for stocks than bonds. Following the release at 830AM, benchmark Treasury rates rose 12 basis points and MBS prices moved lower... which pushed mortgage rates higher...AGAIN.
Reports from fellow mortgage professionals indicate lender rate sheets to be considerably worse this morning. The par 30 year conventional rate mortgage has now risen to the 4.75% to 5.00% 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% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. As always, you can elect to pay less in fees and secure a higher interest rate which is a great option for homeowners not planning on keeping their home for more than three years.
Hopefully you followed our advice and your locked your loan prior today's report. If your loan is locked, rising rates will not affect your loan pricing. If you didn't, here is our outlook...
While we did see a lot of weakness in the market after the report, selling pushed rates to a very familiar level of support...selling stopped out there. This is a level we have tested several times in 2009: 3.50% on the 10yr Treasury note. In almost every run in with this support level, rates have reversed course and moved lower.This is already starting to occur again today. Plus, year end is a seasonally supportive time for the rates market.
The previously discussed "range" support at 3.50% combined with seasonal influences should serve to stabilize mortgage rates and allow lenders to keep rate sheet rebate from getting progressively worse. That said, while record low rates are no longer available, mortgage rates are still historically aggressive. But, I do believe mortgage rates will go lower before year end, however there isn't much room to tick lower...4.50% has proven to be a firm floor.
With these considerations in mind, if you are looking to close in December, I recommend floating. HOWEVER, if you are closing in 2010, I think locking is a better play.
Remember: the larger your loan amount, the more your payment will change when interest rates fluctuate.
I hope everyone has a great weekend. Gonna be cold here in Dallas which makes for a great weekend of football. Anybody want to take a stand on Alabama vs Florida?