Mortgage Rates Pause Waiting Employment Data
Posted 06-04-2010 at 08:14 AM by VictorBurek
We had another relatively calm day in the mortgage backed securities market yesterday as market participants await the most influential report we receive on a monthly basis…Employment Situation. Following a lower opening, MBS did manage to regain the morning losses to close at the same level as the prior day. The lack of volatility in the rates market allowed lenders to keep rate sheets unchanged on the day.
Onto the data…and it was quite disappointing on the headline.
The Employment Situation Report is published once a month by the Bureau of Labor Statistics. This is one of the most influential economic reports available to investors as consumer spending accounts for the majority of our economic growth. Spending is highly dependent on a strong labor market to generate wages for Americans.
We receive four different metrics on the health of the jobs market from this release:
1. Nonfarm Payrolls - totals the number of jobs lost or created in the prior month. Consensus Forecast: +513,000 jobs vs. +290,000 last month
2. Unemployment Rate – the percentage of able Americans who are out of work. Consensus Forecast: 9.8% vs. 9.9% last month
3. Average Hourly Earnings – shows the monthly change in the hourly wages. Consensus Forecast: +0.1% vs. 0.0% last month
4. Average Work Week – shows the average amount of hours worked weekly. Consensus Forecast: 34.1 hours vs. 34.1 last month
Here are the official results:
1. Nonfarm Payrolls - +431,000 jobs, much lower than expected. Of those, 411,000 are temporary census taker jobs so only 20,000 other jobs created. April’s numbers were left unchanged but March’s were revised worse from +230,000 to +208,000.
2. Unemployment Rate - 9.7%, better than expected. Helping the rate to decline was a substantial increase in discouraged Americans who have given up looking for work and are no longer counted in the official numbers.
3. Average Hourly Earnings - +0.3%, better than expected. This is good news for consumers. Even though less jobs were created then thought, the average worker is making more money which gives them more disposable income.
4. Average Work Week - 34.2, better than expected. This is also good news for consumers with jobs. They are working more hours on average each week which will equate to a bigger pay check and more money to spend into the economy.
This report was quite disappointing on the headline number of jobs created, but we did get some positive news. First, the unemployment rate ticked lower, albeit, mainly due to many discouraged job seekers, but the official rate is lower which can help consumer confidence. The more confident consumers are, the more they will spend helping the economy improve. Additionally, the average American will not read deep into this report to see that the main reason for the decline was many Americans that have been looking for a job for a long time have just given up and are no longer counted as unemployed. The typical American consumer will just see the headline that the unemployment rate moved lower. Secondly, the average worker is making more money per hour and working a longer week. This will result in a larger paycheck giving them more disposable income which can be spent into the economy.
Following the release of this report, stock market futures have dropped substantially while the fixed income sector is benefitting with a flight to safety. Lender rate sheets should show a healthy price improvement.
Reports from fellow mortgage professionals do indicate that lenders have passed along better rate sheets this morning. The par 30 year fixed rate conventional mortgage has once again fallen to the 4.625% to 4.875% range for well qualified consumers. To secure a par interest rate on a conventional mortgage 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. You may elect to pay less in costs but will have to accept a higher interest rate. A no cost loan should be in the 5.375% to 5.5% range. A no cost loan is a great option for consumers who do not plan on keeping the current home for more than 3 years.
With lenders passing along better rate sheets this morning, I find it hard to pass up locking today. The only loans I would suggest floating would be loans that are a day or so away from a shorter lock period which offers better pricing. On the other hand, there are more concerns coming from Europe regarding debt, this time it is Hungary. They may be close to defaulting on their debt which could spark another round of flight to safety which helped mortgage rates hit new lows a couple weeks ago. If you can tolerate some risk, floating over the weekend could pay off but nothing wrong with locking today as rates have very little room to improve.
Have a great weekend and I will be back to you on Monday with a look at the week ahead.
Onto the data…and it was quite disappointing on the headline.
The Employment Situation Report is published once a month by the Bureau of Labor Statistics. This is one of the most influential economic reports available to investors as consumer spending accounts for the majority of our economic growth. Spending is highly dependent on a strong labor market to generate wages for Americans.
We receive four different metrics on the health of the jobs market from this release:
1. Nonfarm Payrolls - totals the number of jobs lost or created in the prior month. Consensus Forecast: +513,000 jobs vs. +290,000 last month
2. Unemployment Rate – the percentage of able Americans who are out of work. Consensus Forecast: 9.8% vs. 9.9% last month
3. Average Hourly Earnings – shows the monthly change in the hourly wages. Consensus Forecast: +0.1% vs. 0.0% last month
4. Average Work Week – shows the average amount of hours worked weekly. Consensus Forecast: 34.1 hours vs. 34.1 last month
Here are the official results:
1. Nonfarm Payrolls - +431,000 jobs, much lower than expected. Of those, 411,000 are temporary census taker jobs so only 20,000 other jobs created. April’s numbers were left unchanged but March’s were revised worse from +230,000 to +208,000.
2. Unemployment Rate - 9.7%, better than expected. Helping the rate to decline was a substantial increase in discouraged Americans who have given up looking for work and are no longer counted in the official numbers.
3. Average Hourly Earnings - +0.3%, better than expected. This is good news for consumers. Even though less jobs were created then thought, the average worker is making more money which gives them more disposable income.
4. Average Work Week - 34.2, better than expected. This is also good news for consumers with jobs. They are working more hours on average each week which will equate to a bigger pay check and more money to spend into the economy.
This report was quite disappointing on the headline number of jobs created, but we did get some positive news. First, the unemployment rate ticked lower, albeit, mainly due to many discouraged job seekers, but the official rate is lower which can help consumer confidence. The more confident consumers are, the more they will spend helping the economy improve. Additionally, the average American will not read deep into this report to see that the main reason for the decline was many Americans that have been looking for a job for a long time have just given up and are no longer counted as unemployed. The typical American consumer will just see the headline that the unemployment rate moved lower. Secondly, the average worker is making more money per hour and working a longer week. This will result in a larger paycheck giving them more disposable income which can be spent into the economy.
Following the release of this report, stock market futures have dropped substantially while the fixed income sector is benefitting with a flight to safety. Lender rate sheets should show a healthy price improvement.
Reports from fellow mortgage professionals do indicate that lenders have passed along better rate sheets this morning. The par 30 year fixed rate conventional mortgage has once again fallen to the 4.625% to 4.875% range for well qualified consumers. To secure a par interest rate on a conventional mortgage 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. You may elect to pay less in costs but will have to accept a higher interest rate. A no cost loan should be in the 5.375% to 5.5% range. A no cost loan is a great option for consumers who do not plan on keeping the current home for more than 3 years.
With lenders passing along better rate sheets this morning, I find it hard to pass up locking today. The only loans I would suggest floating would be loans that are a day or so away from a shorter lock period which offers better pricing. On the other hand, there are more concerns coming from Europe regarding debt, this time it is Hungary. They may be close to defaulting on their debt which could spark another round of flight to safety which helped mortgage rates hit new lows a couple weeks ago. If you can tolerate some risk, floating over the weekend could pay off but nothing wrong with locking today as rates have very little room to improve.
Have a great weekend and I will be back to you on Monday with a look at the week ahead.
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