ADP Helps Rates Improve to Record Low

There really isn’t much to say about yesterday. Mortgage backed securities opened at the top of our range and held there the entire day. Lenders passed along very aggressive rate sheets. They were not the best rate sheets ever but darn close (today’s are the best). Rates below 4.125% were available, but you credit profile would have to be perfect, you could not be accessing any equity and you would have to have at least 20% equity in your home.

We got a preview into the jobs sector this morning with the release of the ADP Employment Report. This release provides market watchers with a sneak peek into the health of the labor markets. The timing of this release occurs is important because it occurs when the market is anticipating the government's official job market economic report: the Employment Situation report, which is due out this Friday at 8:30am eastern.

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 jobs report is the ADP numbers do not take into account government hiring, only jobs created in the private sector. Since our economy is driven by consumer spending, higher unemployment would imply consumers have less money to spend, a negative for corporate profits and stock markets but generally a positive thing for mortgage rates.

This morning’s release was very disappointing. The private sector lost 39,000 jobs in September, much worse than economists’ expectations of 24,000 jobs added! Augusts’ data was revised better from the first reported loss of 10,000 jobs to a gain of 10,000. With the preview over, the market now awaits the official jobs report on Friday. It is expected that 0 jobs were created or lost in September. Economists also forecast the unemployment rate ticking higher, from 9.6% to 9.7%.

Thanks to the worse than expected ADP report, MBS have continued to move higher and lenders are passing along the gains with the best priced rate sheets ever. The par 30 year conventional rate mortgage is now in the 4.125% to 4.375% range for well qualified consumers. Lower rates are available, but you will have to have stellar credit and be willing to pay a little extra in costs. If you are seeking a 15 year term, you should expect a par rate in the 3.625% to 3.875% range.

MBS are at the top of our range which we have used to recommend lock or float… lock the price highs, float the lows. This strategy has been very successful over the past year. The near term direction for mortgage rates will likely be determined on Friday. If you feel the official report on jobs will be worse than expected, floating could pay off and rates could move lower. If the official jobs report is better than expected, rates will be pressured higher quickly. With rates at historic lows, I feel floating is risky. Yes, rates could get a little better if the report on Friday is bad, but not much better. So, I feel you have more to risk than to gain by floating.