Mortgage Rates Steady, Sneak Peak into Jobs

Mortgage backed securities opened yesterday moving higher in price allowing lenders to pass along improved rate sheets from the prior morning. As the day progressed, MBS continued to add onto the morning gains resulting in a few lenders to reprice for the better. However, around noon MBS peaked in price and sellers emerged driving MBS prices lower. A couple of those lenders that had repriced for the better sent out another rate sheet taking away part of the price improvement.

We had a couple economic reports released this morning. First out was a look into job growth 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.

The report blew away expectations. Economists expected ADP to report that 101,000 jobs were created in December, but the data indicated private payrolls grew by 297,000. The number of private sector jobs created in December was the biggest monthly gain since July 2006 when ADP reported a monthly gain of 368,000. On the news, the benchmark 10 year treasury note rose from a yield of 3.29 to 3.41 in a matter of minutes taking MBS prices lower. Lender rate sheets will be worse this morning. A big question is are these temporary jobs for the holidays or the beginning of substantial job growth?

Our other data release was the ISM Non-Manufacturing Index. This report gives us a look into the strength of the non manufacturing sector of our economy. Readings above 50 indicate expanding or improving conditions while readings below 50 indicate contraction or worsening conditions. This report is a lower tier report and historically has had minimal effect on the overall market sentiment. Last month’s report rose from the prior month to 55.0, the highest reading since the summer and the third month in a row of improving conditions.

The index indicated the non-manufacturing sector of our economy improved to a print of 57.1, beating expectations of 55.6. This continues the streak of improving non-manufacturing conditions to four months and the highest reading since July 2007.

Lender rate sheets are worse this morning from .25 to .50 in discount. The par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for well qualified consumers. The lenders offering 4.625% yesterday or no longer doing so today. 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.

Floating through Friday’s Employment Situation Report is very risky. If you plan to lock before that data, you should strongly consider doing so today.