Mortgage Rates Hold Steady, ADP Shows Job Growth
Posted 08-04-2010 at 08:11 AM by VictorBurek
In contrast to Monday, weakness in stocks yesterday helped the fixed income sector move higher. Both benchmark Treasuries and mortgage backed securities moved higher in price lower in yield erasing the price losses of the day before. Despite the decent price gain with MBS, only a couple lenders repriced for the better proving yet again they are slow to pass along gains but very quick to take away.
We do have several economic reports hitting the news wires this morning.
First out was the weekly Mortgage Bankers Association’s Applications Survey. The MBA loan applications survey covers over 50% of all US residential mortgage apps taken by mortgage bankers, commercial banks, and thrifts. Survey data gives economists a sample of consumer demand for mortgage loans. In a low mortgage rate environment, a trend of increasing refinance applications could imply more consumers are seeking out lower monthly payments. If more homeowners are able to qualify for lower payments, their disposable income would increase which could lead to a rise in consumer spending (or give consumers a chance to pay down other debts like credit cards). A falling trend of purchase applications indicates consumer demand for new and existing homes is on the decline, a negative for the housing industry and the economy as a whole.
In the week ending July 30, purchase applications rose for the third straight week posting a 1.5% increase. The refinance index posted a 1.3% increase as home owners look to take advantage of record low mortgage rates. This report historically has little if any impact on the markets.
Next came a sneak peek into the health of the labor markets with the release of ADP Employment report. This report is always released on the Wednesday prior to the official government report on job creation which comes on Friday. Historically, the ADP report has varied greatly from the official employment report, but its accuracy has been improving more recently. The biggest difference between the two reports is the ADP numbers do not take into account government hiring, only jobs created in the private sector. The other major difference is the ADP report is generated by a private payroll company and not the government. Since our economy is driven by consumer spending, higher unemployment would imply consumers have less money to spend. This is negative for corporate profits and the stock market but helpful in keeping interest rates low.
Today’s release by ADP showed private payrolls for July increased 42,000, slightly higher than the 40,000 estimate by economists. The prior month’s data was revised better to show an additional 6,000 jobs created. Market participants will now turn their attention to the official jobs numbers coming Friday. The Employment Situation report is expected to show a loss of 70,000 jobs and the unemployment rate ticking higher to 9.6%.
Following the release of the ADP report, stock market futures have turned positive pressuring MBS lower.
Our final release on the day was the ISM Non-Manufacturing Index. The Institute for Supply Management surveys 400 firms, including mining, construction, retail, etc… on the strength of business conditions. Readings above 50 indicate improving or expanding conditions while readings below 50 indicate contraction. Last month’s report fell to 53.8, the lowest reading on the survey since February. Today’s release came in higher than expected with a print of 54.3. Following the release, stocks are extending gains at the expense of fixed income securities.
With the price gains from yesterday, lenders are passing along better pricing today. The par 30 year fixed rate conventional mortgage is 4.25% to 4.50% for well qualified consumers. To be considered well qualified you must have a FICO credit score of 740 or higher. If your FICO score is lower, you should consider a FHA/VA loan which offers similar rates but with higher costs. Most lenders have a minimum FICO score on FHA/VA of 620 to qualify while a few lenders have 640 as the minimum score.
With the Employment Situation report coming Friday, I suspect the market will probably trade sideways for the next couple days while we await the official jobs report. If this report comes in better than expected, mortgage rates will be pressured higher very quickly. If the report comes in worse than expected, rates could improve but there isn’t much room for them to go lower. If your loan is closing within 15 days, I would recommend locking ahead of this report. If your closing is happening in more than 15 days, base your lock/float decision on what you think the payroll data will show.
We do have several economic reports hitting the news wires this morning.
First out was the weekly Mortgage Bankers Association’s Applications Survey. The MBA loan applications survey covers over 50% of all US residential mortgage apps taken by mortgage bankers, commercial banks, and thrifts. Survey data gives economists a sample of consumer demand for mortgage loans. In a low mortgage rate environment, a trend of increasing refinance applications could imply more consumers are seeking out lower monthly payments. If more homeowners are able to qualify for lower payments, their disposable income would increase which could lead to a rise in consumer spending (or give consumers a chance to pay down other debts like credit cards). A falling trend of purchase applications indicates consumer demand for new and existing homes is on the decline, a negative for the housing industry and the economy as a whole.
In the week ending July 30, purchase applications rose for the third straight week posting a 1.5% increase. The refinance index posted a 1.3% increase as home owners look to take advantage of record low mortgage rates. This report historically has little if any impact on the markets.
Next came a sneak peek into the health of the labor markets with the release of ADP Employment report. This report is always released on the Wednesday prior to the official government report on job creation which comes on Friday. Historically, the ADP report has varied greatly from the official employment report, but its accuracy has been improving more recently. The biggest difference between the two reports is the ADP numbers do not take into account government hiring, only jobs created in the private sector. The other major difference is the ADP report is generated by a private payroll company and not the government. Since our economy is driven by consumer spending, higher unemployment would imply consumers have less money to spend. This is negative for corporate profits and the stock market but helpful in keeping interest rates low.
Today’s release by ADP showed private payrolls for July increased 42,000, slightly higher than the 40,000 estimate by economists. The prior month’s data was revised better to show an additional 6,000 jobs created. Market participants will now turn their attention to the official jobs numbers coming Friday. The Employment Situation report is expected to show a loss of 70,000 jobs and the unemployment rate ticking higher to 9.6%.
Following the release of the ADP report, stock market futures have turned positive pressuring MBS lower.
Our final release on the day was the ISM Non-Manufacturing Index. The Institute for Supply Management surveys 400 firms, including mining, construction, retail, etc… on the strength of business conditions. Readings above 50 indicate improving or expanding conditions while readings below 50 indicate contraction. Last month’s report fell to 53.8, the lowest reading on the survey since February. Today’s release came in higher than expected with a print of 54.3. Following the release, stocks are extending gains at the expense of fixed income securities.
With the price gains from yesterday, lenders are passing along better pricing today. The par 30 year fixed rate conventional mortgage is 4.25% to 4.50% for well qualified consumers. To be considered well qualified you must have a FICO credit score of 740 or higher. If your FICO score is lower, you should consider a FHA/VA loan which offers similar rates but with higher costs. Most lenders have a minimum FICO score on FHA/VA of 620 to qualify while a few lenders have 640 as the minimum score.
With the Employment Situation report coming Friday, I suspect the market will probably trade sideways for the next couple days while we await the official jobs report. If this report comes in better than expected, mortgage rates will be pressured higher very quickly. If the report comes in worse than expected, rates could improve but there isn’t much room for them to go lower. If your loan is closing within 15 days, I would recommend locking ahead of this report. If your closing is happening in more than 15 days, base your lock/float decision on what you think the payroll data will show.
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