More commonly called “the jobs report”, Non-Farm Payrolls is a major market mover. The number of working Americans is directly tied to the health of the economy which, in turn, drives the stock and bond markets.

In general, when jobs numbers improve, it’s good for stocks and bad for mortgage bonds. It follows, therefore, that conforming mortgage rates rise because rates always move opposite of mortgage bond prices.

Conversely, when jobs numbers worsen, it tends to be bad for stocks and good for mortgage bonds.  Mortgage rates fall.

Today, markets are behaving a bit differently.

Despite 290,000 jobs created in April 2010 — nearly twice the expected amount — and a 40 percent upward revision of March’s numbers, mortgage rates are essentially unchanged.

In a normal environment, rates would be higher.  Today is not normal.

Today is a departure because, for all of the jobs report’s import to Wall Street, it’s less important to markets than what’s happening in Greece right now.

Greece is struggling to meet its debt obligations and its citizens are rioting.

Until a debt solution for Greece is made that sticks, unrest in the region will drive safe haven buying both domestically and abroad. U.S. mortgage bonds will gain on that movement because mortgage bonds are “safe”, and mortgage rates will fall.

Indeed, this is exactly what’s been happening since the start of April. Mortgage markets have been rallying for 5 weeks.

So, today’s jobs news is terrific for the economy and mortgage rates should be rising because of it.  But, they’re not. Consider taking advantage — lock in a rate.

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Expect rate volatility this morning and afternoon and, therefore, by extension, expect wild swings in the Home Affordability Index.

As mortgage rates rise and fall, monthly mortgage payments do, too.

The relationship between “vacation days” and mortgage rate volatility stems from 2 facts — (1) Conforming mortgage rates are based on the price of mortgage-backed bonds, and (2) mortgage-backed bonds trade just like stocks.  You can’t make a deal without matching a buyer and a seller at a specific price.

With so many traders on vacation today, therefore, there are fewer opportunities to match buyers and sellers.  As a result, expect mortgage bond prices to rise and fall with more velocity than on a “normal” day — especially because the August jobs report was just released.

So far this morning, mortgage rates have been jumpy and are higher versus Thursday’s close.

That said, mortgage pricing is fluid, changing every minute of every day.  Today, expect those changes to be exaggerated.  If you have a chance to lock a favorable rate, consider taking it because, before long, the rate could be gone.

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Friday was the worst day of the week by far.

An all-day deterioration, sparked by better-than-expected housing data, caused mortgage rates to tack on a quarter-percent by the noon hour and markets never recovered.

Rates closed out at their worst levels of the week and the unfavorable momentum figures to carry into this week’s trading, too.

There are two major reasons why rates could rise higher this week:

1. Fed Chairman Bernanke said Friday that the near-term growth prospects “appear good”. Comments like this draw money from bond issues to the stock market — a move that’s bad for rates.
2. Crude oil hit a 10-month high, a potentially inflationary development. Inflation often leads mortgage rates higher.

Furthermore, rate shoppers should take note that this week will feature the release of two key housing reports — the Case-Shiller Index (Tuesday) and the New Homes Sales report (Wednesday). Both have handily beat expectations in recent months and should that trend continues, mortgage rates would likely rise because of renewed economic optimism.

What’s good for the economy, lately, has tended to be bad for rates.

Whether you’re shopping for a new home or looking to refinance an existing one, be wary of the ever-changing mortgage market.  Rates move quickly and without warning. However, they tend to rise faster than they fall.

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Although the FED announced to keep the FED Funds target unchanged, MBS gave up ground with the 30 YR FNMA 4.0% pulling back 22bp.  Mortgage Rates held their ground and closed where they ended yesterday.

The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today within its target range of 0.000-0.250 percent.  The Fed also reiterated its plan to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the economy may still be contracting, but that it’s not happening with the same speed as in prior months.  Household spending is stabilizing and financial markets are “easing”.

Nevertheless, threats to the recovery are everywhere with the following items on the Fed’s short list:

• The growing ranks of unemployed workers
• The reduction of housing wealth nationally
• Reduced inventories and investment from business

Furthermore, the FOMC fingered today’s inflation levels as too low to support economic growth.  This justifies the Fed’s plan to hold the Fed Funds Rate near zero percent “for an extended period”.

The FOMC’s next scheduled meeting is June 23-24, 2009.

Source
Parsing the Fed Statement
The Wall Street Journal Online
April 29, 2009

http://online.wsj.com/public/resources/documents/info-fedparse0904.html

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For active home buyers who have yet to find the “right home”, long-term flatness like this is terrific.  While interest rates stay even, buyer purchasing power holds flat and pre-approval letters stay valid.

For buyers under contract or homeowners looking to refinance, though, the market’s pattern is a little more rough.  Although rates are holding steady week-to-week, the day-to-day action is quite different.  Bond markets are volatile and rate swings of a quarter-percent in a day have been common.

How good of a rate you get depends on day on which you shop. This complicates the process of “locking a rate” and makes it very hard for people trying to time a market bottom.

This week, though, the market may finally make a run and break its range.

Aside from it being an unusually data-heavy week, the Federal Reserve meets Tuesday and Wednesday to discuss monetary policy.  The data combined with the Fedspeak may push the markets one way or the other towards economic optimism or pessimism for the latter half of 2009.

Lately, it’s been a combination of the two — a “cautious optimism” — and that’s a big reason why mortgage rates have held in a tight range for so long.

Understand, though, that when mortgage rates finally do move, they’re going to move in a big way.  So, if you’re among the crowd looking for lower rates, the best possible outcomes you can hope for this week are:

• Weak consumer confidence data (Tuesday, Friday)
• Weak consumer spending data (Thursday)
• Falling “cost of living” calculations (Thursday)
• Fed concerns about deflation and/or recession (Wednesday)

Any of these four events would likely temper hope for a quick economic revival, sending mortgage rates lower.  On the other hand, if confidence or spending is strong, or the Fed has no regard for deflation or recession, expect mortgage rates to rise.

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Mortgage rates ended last week exactly where they started.  However, if you locked your mortgage rate Tuesday, you got a rate decidedly lower than someone who waited until Friday.

Last week, one of the biggest mortgage rate drivers was a series of surprisingly strong corporate earning reports, including those from financial firms Goldman Sachs and Citigroup.

The positive reports pushed the Dow Jones Industrial Average to its 6th consecutive weekly gain.  This is the market’s longest winning streak in two years and its best 6-week rally since 1938, in percentage terms.

In part, the rally is boosting Consumer Sentiment, too.  According to a survey, Americans are feeling better about the economy than at any time since last September’s meltdown.

But while stock market rallies and rising consumer sentiment can be good for our investment portfolios, they’re not always welcome when we’re shopping for mortgage rates.  This is because the bond market is considered a “safe place” for money, an alternative for when stock markets are risky.

When market risk is reduced like, say, following 6 consecutive weeks of gains, the safe haven of bonds loses some of its importance to investors.

As a result, bonds start to sell-off so more cash is available to invest in equities.  Bond prices suffer when this happens and, because mortgage rates are based on the price of mortgage bonds, mortgage rates suffer, too.

This week, there are a number of large corporations reporting first quarter earnings including banking behemoths Bank of America and US Bank, plus companies like IBM, AT&T and McDonald’s.  Strong earnings may — again — lead mortgage rates higher.

If you’re among the thousands of Americans still waiting for mortgage rates to “bottom out”, consider that the bottom may have already been touched.

It’s tough to follow mortgage rates in real-time so, at least in the short-term, you can find some clues in the stock market.  If stock markets are starts rising this week, it’s likely mortgage rates are, too.

Image: http://www.flickr.com/photos/wwworks/2959833537/

[where: 98109] [where: 85012]

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Individuals who probably should have been looking for a job today decide they would use their resources to protest on Wall Street.  Don’t blame Wall Street when you miss out that job opportunity, you made to choice to be an activist vs. being a proactive job hunter.  I am glad we haven’t reached the egocentric self entitlement mind frame as Europe.  Destroying private property and trapping CEOs angry mob style is extremely civilized and is a sure fire way to a resolution, I believe this is considered No Cost Decision Making!

The week of April 3, 2009 Mortgage Rate Chart.

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Many believe today was the end of our generations first Depression and tomorrows Job Numbers will signal the true bottom.   Another positive signal the housing crisis may be nearing its end is the number of homes under contract to sell is rising, another signal that the housing market may be regaining its footing.

As reported by an industry trade group, the Pending Home Sales Index gained 2 percent in February.  The report measures MLS-listed homes in “pending” status — sold but not yet closed.

Pending Home Sales is not a perfect statistic, though, by any means.

For one, the Pending Home Sales Index doesn’t account for non-MLS listed homes including For Sale By Owner properties and mass foreclosure auctions.  In certain markets nationwide, these two categories represent a large percentage of the overall transaction volume.

Secondly, Pending Home Sales samples just 20 percent of all MLS-based transactions — hardly a complete listing.

But most importantly, a “pending” home sale is not the same as a closed home sale.  A lot of things can go wrong between the time a home goes under contract and the supposed closing date.  For example, the home inspection could fail, the contract could fall apart, and/or the buyer’s financing could be denied in underwriting.

All things equal, though, Pending Home Sales is a fair forward-looking indicator for the housing market as a measurement of buy-side demand for homes.

When Pending Home Sales rise, it’s tells us that buyers and sellers are matching up, clearing out market inventory.  And actual home sales often follow “pending” ones — 80 percent of Pending Home Sales will close within 60 days.

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Our current recession has been thus far called ”housing-led” and was predicted to last several years.  Last week’s data, however, provides at least some evidence that the recession may be ending; that the economy may find its way forward sooner rather than later.

Indeed, even members of the Federal Reserve now call for a turnaround starting in as few as 6 months.

For now, market reaction to the unexpected data has been tepid.  Therefore, watch for developments over the coming weeks and — perhaps more importantly — keep an eye on the investor mindset.  If bond markets start to sell-off en masse, don’t be surprised if mortgage rates race higher by quarter-point leaps at a time.

Meanwhile, this week, the biggest data release is Friday’s jobs report.  It’s expected to show unemployment reaching to 8.5% with another 656,000 Americans losing their jobs in March.  As before, if the data isn’t as bad as expected, watch for stocks to rise and mortgage rates to go with them.

After a scary start to the month the FED injections boosted the mortgage market (see chart)

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On plan to resurrect the economy using “all available tools”, today, the Fed announced a new, $1.5 trillion round of fiscal support for the treasury and mortgage markets.

The stimulus will likely be Thursday morning’s headline story.

In its press release, the FOMC touched upon a few of the prevailing economic issues, using these points as a legitimizing backdrop for its newest debt load:

• Job losses and wealth loss are dragging down consumer spending
• Some U.S. trading partners are falling into recession
• Businesses are cutting back on investment and inventory

Of interest is that the FOMC said today’s inflation levels may be too low to support economic growth at all.  This condition is more commonly called deflation.  The Fed’s latest actions, therefore, may be a deliberate attempt to induce inflation through unprecedented borrowing.

For home buyers and potential refinancers, this is terrific news — at least in the short-term.  By introducing new demand for mortgage bonds, the Fed will help pressure mortgage rates lower.  Already this afternoon, mortgage rates fell and they will continue to fall until the market reaches a new equlibrium.

After the Fed’s last intervention, markets reached their balance point in about a day-and-a-half.

Source
Parsing the Fed Statement
The Wall Street Journal Online
March 18, 2009

http://online.wsj.com/public/resources/documents/info-fedparse0903.html

[where: 98109] [where: 85012]

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