Economy Loses Less Jobs Than Expected, Rates Suffer

The Employment Situation report was released today.  The most important component of this report is the Non-Farm-Payrolls.  Analysts had predicted that this number would read negative 75,000.

 However, the actual reading was only negative 20,000.  This is significantly better than expected and adds to what some consider to be growing evidence that the economy is pulling up from a nose dive into recession.  In general, when the economy is weak and inflation is under control, mortgage rates will be low.  We are currently enjoying rates in the 5's and 6's because of the general level of economic weakness we've been experiencing. 

So when data comes along like this which points to a recovering economy, it is not good for mortgage rates.  The underlying reason is that investors always want their money to be positioned for the highest and safest return.  When the economy is strong, stocks have a higher return potential than bonds considering risks.  So this means fewer investors are putting their money in mortgage bonds which causes sellers of those bonds to lower their prices.  And this raises mortgage rates.  The opposite is true when economic weakness is evident.  Investors seek the safety of lower, but more guaranteed rates of return offered by bonds.  This competition among buyers allows sellers to raise the price of their securities which improves mortgage rates.

 
So, in a nutshell, that's what we have happening today.  There was a precipitous drop in mortgage bond pricing immediately following the jobs announcement.  It has failed to recover as of this afternoon.  Even though I use the word precipitous, this will likely no change rates that were available to you yesterday by more than .125.

Next week is fairly light in terms of economic data, so we will stay tuned to stock market movements and economic news headlines to gauge the direction of the market.  In both a near and long term historical context, rates are very low, which is a good argument for locking.  If you are firmly convinced that the stock market will fall next week, or that other signs of economic weakness will be displayed, floating your rate can pay off, but locking is the safer choice considering the nice rate improvements we've had over the past 2 weeks.