Mortgage Rates Erase All Gains
Posted 12-01-2010 at 08:36 AM by VictorBurek
The bond market took a beating overnight. Optimism in Europe and easing tensions between North and South Korea have brought risk back in favor. Manufacturing data from Europe and China showed faster growth than expected sparking stock market rallies pulling money away from bonds. All the gains we enjoyed on Monday and yesterday were erased at the open this morning.
Busy day for data. Out first was 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 report was much better than expected. Economists expected the ADP to report that 70,000 jobs were created in November, but the report indicated the private sector added 93,000 jobs. The number of private sector jobs created in November is the biggest since November 2007! On top of that, October’s report was revised better from 43,000 to 82,000 jobs created. Both the ADP report and recent weekly Jobless Claims do point to a better than expected Non-Farm Payroll report on Friday.
Next out was the final revision to 3rd Quarter Productivity and Costs. This data measures how efficient our work force is at producing our nation’s goods and services. A more productive work force means employers do not need to hire additional staff to increase production, while unit labor costs measures the labor cost of producing each unit of output. Higher productivity lowers the unit cost of producing goods which helps to keep inflation in check which is one of the biggest enemies of low rates.
The report came in as expected. Productivity was revised up to 2.3% from the initial estimate of 1.9%. Unit labor costs fell 0.1% , matching the initial estimate but beating estimates of 0.0%. This report is positive news for mortgage rates since wage based inflation is in control and workers were more productive than first thought, but the positive ADP report is preventing any rally with bonds.
Our next report looks at the strength of the manufacturing sector. The ISM Manufacturing Index is based on a survey conducted by the Institute for Supply Management. It covers more than 300 manufacturing firms and reports on their feedback of business conditions. Readings above 50 indicate economic expansion or improving conditions while readings below 50 indicate economic contraction or deteriorating conditions. The ISM index has held above 50 since the Summer of 2009 with the read last month coming in at a better than expected 56.9. However, the recent trend has been a decline. ISM peaked in April with a print of 60.4 and since has been moving lower. The report indicated business conditions worsened with a print of 56.6, basically in line with expectations.
At 2pm, the Federal Reserve releases the Beige Book, named that simply for the color of its cover. The Beige Book is a compilation of anecdotal information and data on current economic conditions across the country. The findings are not the views of Federal Reserve officials...instead, each Federal Reserve bank interviews key business contacts, economists, market experts, and other sources in their specific district. This report is published eight times a year and is released two weeks before each FOMC meeting. Much of the information is already known so its impact on the markets is also minimal. Since it is used at the FOMC meeting where our nation’s monetary policy is set, market participants scour the book for any hint of future monetary policy and the outlook for our economy.
Lender rate sheets are worse this morning. The par 30 year conventional rate mortgage is holding in the 4.375% to 4.625% range for well qualified consumers. The lenders offering 4.25% are no longer doing so unless you are willing to pay extra which makes securing that rate to costly to justify. 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. For consumers with lower FICO scores or higher loan to values, you should consider a FHA loan which offers similar rates but with higher costs due to an upfront fee that FHA charges which is equivalent to 1% of your loan amount.
Mortgage backed securities are off the lows of the morning. If you are not locked, you might as well continue to float as the damage is done.
Busy day for data. Out first was 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 report was much better than expected. Economists expected the ADP to report that 70,000 jobs were created in November, but the report indicated the private sector added 93,000 jobs. The number of private sector jobs created in November is the biggest since November 2007! On top of that, October’s report was revised better from 43,000 to 82,000 jobs created. Both the ADP report and recent weekly Jobless Claims do point to a better than expected Non-Farm Payroll report on Friday.
Next out was the final revision to 3rd Quarter Productivity and Costs. This data measures how efficient our work force is at producing our nation’s goods and services. A more productive work force means employers do not need to hire additional staff to increase production, while unit labor costs measures the labor cost of producing each unit of output. Higher productivity lowers the unit cost of producing goods which helps to keep inflation in check which is one of the biggest enemies of low rates.
The report came in as expected. Productivity was revised up to 2.3% from the initial estimate of 1.9%. Unit labor costs fell 0.1% , matching the initial estimate but beating estimates of 0.0%. This report is positive news for mortgage rates since wage based inflation is in control and workers were more productive than first thought, but the positive ADP report is preventing any rally with bonds.
Our next report looks at the strength of the manufacturing sector. The ISM Manufacturing Index is based on a survey conducted by the Institute for Supply Management. It covers more than 300 manufacturing firms and reports on their feedback of business conditions. Readings above 50 indicate economic expansion or improving conditions while readings below 50 indicate economic contraction or deteriorating conditions. The ISM index has held above 50 since the Summer of 2009 with the read last month coming in at a better than expected 56.9. However, the recent trend has been a decline. ISM peaked in April with a print of 60.4 and since has been moving lower. The report indicated business conditions worsened with a print of 56.6, basically in line with expectations.
At 2pm, the Federal Reserve releases the Beige Book, named that simply for the color of its cover. The Beige Book is a compilation of anecdotal information and data on current economic conditions across the country. The findings are not the views of Federal Reserve officials...instead, each Federal Reserve bank interviews key business contacts, economists, market experts, and other sources in their specific district. This report is published eight times a year and is released two weeks before each FOMC meeting. Much of the information is already known so its impact on the markets is also minimal. Since it is used at the FOMC meeting where our nation’s monetary policy is set, market participants scour the book for any hint of future monetary policy and the outlook for our economy.
Lender rate sheets are worse this morning. The par 30 year conventional rate mortgage is holding in the 4.375% to 4.625% range for well qualified consumers. The lenders offering 4.25% are no longer doing so unless you are willing to pay extra which makes securing that rate to costly to justify. 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. For consumers with lower FICO scores or higher loan to values, you should consider a FHA loan which offers similar rates but with higher costs due to an upfront fee that FHA charges which is equivalent to 1% of your loan amount.
Mortgage backed securities are off the lows of the morning. If you are not locked, you might as well continue to float as the damage is done.
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The damage is getting worse. all lenders have repriced worsePosted 12-01-2010 at 01:30 PM by VictorBurek
