Tying Friday’s Jobs Report To Rising Mortgage Rates
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Conforming and FHA mortgage rates in San Francisco Bay Area have improved over the last 10 days, but that could all change this Friday with the release of February’s Non-Farm Payrolls report.
Non-Farm Payrolls is the official name of the government’s monthly jobs report and, given the fragile state of the U.S. economy, Wall Street will be watching it closely.
Mortgage rates could spike come Friday morning.
Jobs are an important part of the nation’s recovery. Among other concerns, unemployed Americans don’t spend as much money on goods and services, and are more likely to default on a mortgage. This retards economic growth and increases the potential for foreclosures.
When jobs numbers worsen, therefore, it follows that economic projections worsen, too.
Poor employment figures draw money away from the stock markets and into less-risky bond markets, including mortgage-backed bonds. Mortgage rates improve as a result. Conversely, when jobs numbers improve, stock markets gain and bond markets worsen.
Analysts expect that a net 30,000 jobs were lost in February.
The Bureau of Labor Statistics press release hits at 8:30 A.M. ET, roughly an hour before Friday’s mortgage pricing will be available to consumers. If you’re worried about rates rising on the heels of a strong jobs report, therefore, be sure to get your rate lock in today instead. Once Friday gets here, it may be too late.
The winter months have not been kind to home sales.
After plunging 17 percent in December, Existing Home Sales fell by an additional 7 percent in January, according to the National Association of Realtors®. An “existing home” is a home resold by a previous owner (i.e. not new construction).
In looking at the annualized, adjusted Existing Home Sales data, we find:
- Sales volume is at its lowest levels since June 2009
- Sales volume fell below its 12-month rolling average
- Home supplies are at a 5-month high
These are similar findings to the New Home Sales data issued by the government last week. That report put new home sales at a 40-year low and showed new homes supplies higher by an entire month.
But don’t think housing rebound has halted! Home sales are cyclical and there are outside forces on today’s market.
For one, the market is still feeling the after-effects of the original First-Time Home Buyer Tax Credit. Sales spiked in the months leading up to the original November 2009 expiration date. A pull-back is natural and expected.
Looking at the long-term trend, Existing Home Sales volume appears right in line.
Furthermore, weather across much of the U.S. was awful in January. That, too, can impede home sales as homes are neither shown nor negotiated when weather is majorly inclement.
Anecdotal evidence is showing sales activity higher through February and into March. And, although it’s unlikely we’ll see a spike through April like we did last November, buy-side demand for homes should remain strong. The good news of the sagging sales reports is that today’s buyers may find home prices are lower and sellers are more willing to negotiate.
Mortgage markets improved last week as economic reports painted a less-than-stellar portrait of the U.S. economy and concerns of a looming monetary policy change eased. Mortgage pricing improved dramatically, despite a late-Friday retreat.
Mortgage rates are now at their lowest levels since early-February.
Last week was heavy on negative data:
- Consumer Confidence posted 16% short of expectations
- New Home Sales posted 13% short of expectations
- Initial Jobless Claims were higher than expected
In addition, both the Case-Shiller and Home Price Indices showed a slight pullback in the housing sector.
The impact of these statistics was muted, however. This is because Fed Chairman Ben Bernanke gave his semi-annual outlook to Congress and markets focused more on the chairman verbiage than hard data, looking for clues about the future of Fed policy.
Bernanke stayed on message — the Fed Funds Rate will stay low for an extended period of time.
Mortgage rates were also helped by a strengthening U.S. dollar and demand for U.S.-denominated bonds. When demand for mortgage-backed bonds is strong, mortgage rates fall.
This week, mortgage rates will jockey around Friday’s Non-Farm Payrolls report.
Jobs are playing a large role in mortgage bond trading and markets expect that 30,000 jobs were lost in February. If the actual figure is better than 30,000 jobs lost, mortgage rates will rise. If it’s worse, rates will rise.
Other important data this week include Personal Consumption Expenditures — the Fed’s preferred inflation gauge — plus the Fed’s Beige Book release. Mortgage rates remain in flux so float with caution.
Mortgage rates look good today, but by Friday, they could be much, much worse.
Earlier this week, the private-sector Case-Shiller Index showed home prices slightly lower between November and December. Thursday, the public-sector Home Price Index showed the same.
Publishing on a 2-month lag, the Federal Home Finance Agency said home prices fell by 1.6 percent nationally in December. And that’s an average, of course. Some regions performed well in December as compared to November, others didn’t.
- Values in the Middle Atlantic states improved slightly
- Values in New England were essentially unchanged
- Values in the Mountain states sagged, down 3.5%
These aren’t just footnotes. They’re an important piece toward understanding what national real estate statistics really mean. In short, “national statistics” are just a compilation of a bunch of local statistics.
For example, if we dig deeper into the FHFA Home Price Index 70-page report, we find that cities like Terre Haute, IN, Buffalo, NY, and Amarillo, TX posted year-over-year home price gains. You won’t see that in a “national” report.
Furthermore, it’s a sure bet that those same cities, you could find neighborhoods that are thriving, and others that are not. Just because the city shows higher home values overall, it won’t necessarily be the case for every home in the city.
Every street in every neighborhood of every town in America has its own “local real estate market” and, in the end, that’s what should be most important to today’s buyers and sellers. National data helps identify trends and shape government policy but, to the layperson, it’s somewhat irrelevant.
So, when you need to know whether your home in Palo Alto is gaining or losing value, you can’t look at the national data. You have to look at your block — what’s selling and not selling — and start your valuations from there.