Jobs Numbers Help Reverse Direction of Rates--Best Levels since March 19
Monday, April 7, 2014 • 7:28pm
Not too hot. Not too cold. Just right. While Goldilocks from the famous children's story may have been referring to porridge, the sentiment also applies to the jobs report for March. Read on for the details.
The Labor Department reported that 192,000 jobs were created in March, as much of the country thaws out from the extreme harsh winter weather. This was in line with expectations, and it's a strong number given the amount of job creations reported in recent months. In addition, the figures for January and February were revised higher by 37,000 jobs.
The unemployment rate ticked up to 6.7 percent from 6.6 percent, while the more important Labor Force Participation Rate (LFPR) rose to 63.2 percent from 63 percent. Though it's good that the LFPR increased, it is still near 35-year lows. The LFPR measures the proportion of working-age Americans who have a job or are looking for one, and it should be moving higher in a recovery.
In housing news, CoreLogic reported that home prices (including distressed sales) rose by 12.2 percent from February 2013 to February 2014. This represents 24 months of consecutive year-over-year increases. In addition, from January to February, prices were up 0.8 percent. However, despite the rosy gains, prices are still nearly 17 percent below their peak set in April 2006. The big gains from 2013 are starting to cool and return to more normal historical levels.
What does this mean for home loan rates? The Fed is now purchasing $30 billion in Treasuries and $25 billion in Mortgage Bonds (the type of Bonds on which home loan rates are based) to help stimulate the economy and housing market. This is down from the original $85 billion per month that the Fed had been purchasing. The Fed will be closely watching upcoming reports, especially in the labor and housing markets, as it evaluates the timing of further tapering. These decisions will continue to impact our economy and home loan rates as we move ahead this year.
The bottom line is that now remains a great time to consider a home purchase or refinance, as home loan rates remain attractive compared to historical levels. Let me know if I can answer any questions at all for you or your clients
After last week's busy economic calendar, economic reports don't begin until Thursday this week.
• As usual, weekly Initial Jobless Claims will be released on Thursday. Last week's claims jumped unexpectedly by 16,000, reaching a one-month high.
• On Friday, look for news on inflation at the wholesale level with the Producer Price Index. The Consumer Sentiment Index will also be released.
In addition, the minutes from the March FOMC meeting will be released on Wednesday, and they could provide more insight regarding tapering and the Fed's Bond buying program. Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond on which home loan rates are based.
When you see these Bond prices moving higher, it means home loan rates are improving – and when they are moving lower, home loan rates are getting worse. To go one step further – a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning. As you can see in the chart below, the markets have been volatile this year but home loan rates remain near historic best levels. I'll continue to monitor them closely.
This column takes a look at current mortgage rates, market trends and indexes. Jon Lamkin is Vice President of Mortgage Lending for Guaranteed Rate, 322 Route 46 W Suite 170 • Parsippany, NJ • 07054. He may be reached at 973.939.8661 / firstname.lastname@example.org / www.guaranteedrate.com/jonlamkin
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