Rates Hit 2014 Lows - Lock In by Thursday's Job Numbers
Tuesday, July 1, 2014 • 7:47am
"Help! I need somebody." The Beatles. While the Fed has been working hard to help our economy shake off the recent recession, some key reports continue to disappoint.
After six years and over $4 trillion of stimulus geared toward promoting economic growth, the final reading for 2014 first quarter Gross Domestic Product (GDP) came in at an anemic -2.9 percent. This was worse than expected and the worst reading since the first quarter of 2009, the height of the recession. The report showed that consumer spending fell to 1 percent from 3 percent, which is a big concern as consumer spending is a main driver of our economy.
Harsh winter weather early in the year was a key factor in the contraction. GDP is considered the broadest measure of economic activity, so it will be especially important to see if the second quarter data (from months with better weather) shows signs of improvement when it is released at the end of July.
Housing continues to be a bright spot as New Home Sales for May surged by 18.6 percent to an annual rate of 504,000, well above expectations. Existing Home Sales for May were also up 4.9 percent from April, reaching their highest monthly rate since August 2011. Meanwhile, the Case-Shiller 20-city Home Price Index rose 10.8 percent in the year ended in April. However, from March to April, the 20-city Index gained just 0.2 percent. A spokesman for Case-Shiller said that overall prices are rising month-to-month, but at a slower rate.
What does this mean for home loan rates? The weak GDP report, tame inflation news and a decline in Stocks boosted Mortgage Bonds last week. Since home loan rates are tied to Mortgage Bonds, home loan rates reached some of their best levels this year.
The takeaway is that now remains a great time to consider a home purchase or refinance. Let me know if I can answer any questions at all for you or your clients.
The holiday-shortened week isn't short on economic data, and culminates with Thursday's Jobs Report for June.
• Manufacturing data kicks off the week on Monday with Chicago PMI, followed by the ISM Index on Tuesday.
• Also on Monday, look for housing data with Pending Home Sales for May.
• Thursday brings Weekly Initial Jobless Claims, ISM Services Index and the June Jobs Report, which includes Non-farm Payrolls and the Unemployment Rate.
All capital markets will be closed on Friday, July 4 in observance of Independence Day.
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, Bonds and home loan rates are at some of their best levels this year. However, the June Jobs Report could be a market mover and I'll be watching all the news closely to see what happens.
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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