Employment Situation Day
Posted 11-05-2010 at 08:20 AM by VictorBurek
Mortgage rates held relatively stable yesterday with many lenders offering rates below 4% thanks to Quantitative Easing part two. However, as the day progressed MBS gave back some of their recent gains which forced a few lenders to reprice for the worse but most left rate sheets unchanged on the day.
This morning we received the single most important report we get on a monthly basis… Employment Situation from the Bureau of Labor Statistics. This release provides four headline measures on the health of the jobs sector:
1. Nonfarm Payrolls: totals the number of jobs that were added to or cut from employer payrolls in the prior month. Consensus Forecast: +60,000 vs. -95,000 in September (Private payrolls expected to rise 75,000 after rising 64,000 in September
2. Unemployment Rate: the percentage of working-age, mentally able-Americans who are jobless. Consensus Forecast: 9.6% of the labor force vs. 9.6% last month
3. Average Hourly Earnings: the average amount of earnings per hour of labor performed. Consensus Forecast: +0.1% vs. +0.1% last month.
4. Average Work Week: average amount of hours worked by an employee per week. Consensus Forecast: 34.2 hours vs. 34.2 last month.
Here are the results:
1. Nonfarm Payrolls: +151,000 in October with the private sector adding +159,000 jobs. The increase in private sector jobs was the largest since April. There was also large revisions for the better to the prior two months. September was revised from -95,000 to only -41,000 with August being revised from -57,000 to only -1,000. BETTER THAN EXPECTED
2. Unemployment Rate: held steady at 9.6%
3. Average Hourly Earnings: +0.2% BETTER THAN EXPECTED
4. Average Work Week: +0.1 to 34.3 hours BETTER THAN EXPECTED
Today’s report was much better than expected in all respects. The increase in hourly earnings and work week is very important but often overlooked. Since workers are making more money per hour and working more hours, that will result in larger paychecks and more disposable income that can be spent into the economy.
Typically when you get much better than expected economic data especially on jobs, you see a selloff in the fixed income sector. As I pointed out in yesterday’s blog, “If it shows more jobs created than expected or a lower unemployment rate, mortgage rates could come under pressure but QE2 should lessen that pressure”and that is exactly what has happened. MBS initially moved lower but very quickly corrected and are currently holding near closing levels from yesterday. So we are not seeing a large selloff but lenders will be conservatively priced this morning.
Lender rate sheets are worse. The par 30 year conventional rate mortgage has risen to the 4.00% to 4.25% range for well qualified consumers. There are still a few lenders offering sub 4% rates. 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. If you have a lower FICO score or higher loan to value, you should consider an FHA loan which offers similar rates but with higher costs due to the upfront mortgage insurance fee charged by FHA.
Lenders took away much more than the price declines with MBS justify which is typical for a Friday. If your lender is offering a rate below 4%, and you are closing in the near term you should consider locking today. If you have more than 10 days before closing, I feel floating over the weekend is justified.
This morning we received the single most important report we get on a monthly basis… Employment Situation from the Bureau of Labor Statistics. This release provides four headline measures on the health of the jobs sector:
1. Nonfarm Payrolls: totals the number of jobs that were added to or cut from employer payrolls in the prior month. Consensus Forecast: +60,000 vs. -95,000 in September (Private payrolls expected to rise 75,000 after rising 64,000 in September
2. Unemployment Rate: the percentage of working-age, mentally able-Americans who are jobless. Consensus Forecast: 9.6% of the labor force vs. 9.6% last month
3. Average Hourly Earnings: the average amount of earnings per hour of labor performed. Consensus Forecast: +0.1% vs. +0.1% last month.
4. Average Work Week: average amount of hours worked by an employee per week. Consensus Forecast: 34.2 hours vs. 34.2 last month.
Here are the results:
1. Nonfarm Payrolls: +151,000 in October with the private sector adding +159,000 jobs. The increase in private sector jobs was the largest since April. There was also large revisions for the better to the prior two months. September was revised from -95,000 to only -41,000 with August being revised from -57,000 to only -1,000. BETTER THAN EXPECTED
2. Unemployment Rate: held steady at 9.6%
3. Average Hourly Earnings: +0.2% BETTER THAN EXPECTED
4. Average Work Week: +0.1 to 34.3 hours BETTER THAN EXPECTED
Today’s report was much better than expected in all respects. The increase in hourly earnings and work week is very important but often overlooked. Since workers are making more money per hour and working more hours, that will result in larger paychecks and more disposable income that can be spent into the economy.
Typically when you get much better than expected economic data especially on jobs, you see a selloff in the fixed income sector. As I pointed out in yesterday’s blog, “If it shows more jobs created than expected or a lower unemployment rate, mortgage rates could come under pressure but QE2 should lessen that pressure”and that is exactly what has happened. MBS initially moved lower but very quickly corrected and are currently holding near closing levels from yesterday. So we are not seeing a large selloff but lenders will be conservatively priced this morning.
Lender rate sheets are worse. The par 30 year conventional rate mortgage has risen to the 4.00% to 4.25% range for well qualified consumers. There are still a few lenders offering sub 4% rates. 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. If you have a lower FICO score or higher loan to value, you should consider an FHA loan which offers similar rates but with higher costs due to the upfront mortgage insurance fee charged by FHA.
Lenders took away much more than the price declines with MBS justify which is typical for a Friday. If your lender is offering a rate below 4%, and you are closing in the near term you should consider locking today. If you have more than 10 days before closing, I feel floating over the weekend is justified.
Total Comments 2
Comments
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If you were going to lock today, hurry. MBS have moved lower and reprices for the worse are possible. If you have time before closing, i think we get these losses back next week.Posted 11-05-2010 at 10:14 AM by VictorBurek
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MBS have recovered some. only a few lenders repriced worse.Posted 11-05-2010 at 12:50 PM by VictorBurek
