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The Big Day, Employment Situation
Posted 11-06-2009 at 09:22 AM by VictorBurek
The prices of mortgage backed securities moved slowly but steadily higher yesterday following some good news on productivity and labor costs. The productivity report showed that our workforce is producing goods at a much higher pace which helps keep wage based inflation in check. A few lenders that were conservative on pricing in the morning did reprice for the better as the gains held through the close.
Before we get into today’s data, I want to give a quick update on the First Time Home Buyer Tax credit. Two days ago the Senate passed a bill extending the credit and yesterday the House of Representatives also passed the bill extending the tax credit through April 30th. All that is needed now is for President Obama to sign into law which he is expected to do today.
Onto the data….today is Employment Situation day. Once a month, the U.S. Department of Labor releases a report showing the number of jobs lost or created in the prior month and the official unemployment rate for our country. Included in this report is a measure on workers incomes by showing the monthly change in hourly earnings and work week. Since our nation’s economy is driven by consumer spending, market participants want to know how many people are out of work. Higher unemployment leads to less consumer spending and smaller corporate profits which isn’t good for the stock market. Recent reports have shown the jobs sector improving but our economy is still losing jobs on a monthly basis but at a slower pace.
The report indicates that the jobs outlook worsened in October. The number of jobs lost came in higher than expected at -190,000 and the unemployment rate moved much higher than expected into double digits for the first time since the early 80’s to 10.2%. Economists had expected a loss of 175,000 jobs and a unemployment rate of 9.9%. Last month’s figures on job losses was revised better than first reported to a loss of 219,000 from -263,000. Since the number of jobs lost and the unemployment rates both came in higher than expected, this is positive for MBS.
The average hourly work week held steady at 33.0 hours but of some concern to the fixed income market is the average hourly earnings. Economists had expected a 0.1% increase but the report showed hourly earnings moving 0.3% higher. This could spark concerns with wage based inflation which is one of the biggest worries of fixed income investors. However, with the unemployment rate over 10% and productivity posting large gains, wage based inflation should be of very little concern.
Immediately following the release of today’s data, MBS have continued to move higher which should allow for better rate sheets this morning. Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage has moved lower to 4.75% to 5.00% range for well qualified consumers. To secure a par interest rate 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. If you are seeking a 15 year term, you should expect a par rate between 4.25% to 4.50% with similar closing costs.
MBS continue to hold in the middle of the recent trading range. Since the Employment report was friendly to the fixed income sector, I would recommend that you float over the weekend especially if you have a couple weeks until your closing. However, we are seeing better rates this morning so nothing wrong with locking today and taking advantage of the improvement. Once you lock you remove all risk of higher rates and you might just sleep better.
I hope everyone has a wonderful weekend.
Before we get into today’s data, I want to give a quick update on the First Time Home Buyer Tax credit. Two days ago the Senate passed a bill extending the credit and yesterday the House of Representatives also passed the bill extending the tax credit through April 30th. All that is needed now is for President Obama to sign into law which he is expected to do today.
Onto the data….today is Employment Situation day. Once a month, the U.S. Department of Labor releases a report showing the number of jobs lost or created in the prior month and the official unemployment rate for our country. Included in this report is a measure on workers incomes by showing the monthly change in hourly earnings and work week. Since our nation’s economy is driven by consumer spending, market participants want to know how many people are out of work. Higher unemployment leads to less consumer spending and smaller corporate profits which isn’t good for the stock market. Recent reports have shown the jobs sector improving but our economy is still losing jobs on a monthly basis but at a slower pace.
The report indicates that the jobs outlook worsened in October. The number of jobs lost came in higher than expected at -190,000 and the unemployment rate moved much higher than expected into double digits for the first time since the early 80’s to 10.2%. Economists had expected a loss of 175,000 jobs and a unemployment rate of 9.9%. Last month’s figures on job losses was revised better than first reported to a loss of 219,000 from -263,000. Since the number of jobs lost and the unemployment rates both came in higher than expected, this is positive for MBS.
The average hourly work week held steady at 33.0 hours but of some concern to the fixed income market is the average hourly earnings. Economists had expected a 0.1% increase but the report showed hourly earnings moving 0.3% higher. This could spark concerns with wage based inflation which is one of the biggest worries of fixed income investors. However, with the unemployment rate over 10% and productivity posting large gains, wage based inflation should be of very little concern.
Immediately following the release of today’s data, MBS have continued to move higher which should allow for better rate sheets this morning. Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage has moved lower to 4.75% to 5.00% range for well qualified consumers. To secure a par interest rate 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. If you are seeking a 15 year term, you should expect a par rate between 4.25% to 4.50% with similar closing costs.
MBS continue to hold in the middle of the recent trading range. Since the Employment report was friendly to the fixed income sector, I would recommend that you float over the weekend especially if you have a couple weeks until your closing. However, we are seeing better rates this morning so nothing wrong with locking today and taking advantage of the improvement. Once you lock you remove all risk of higher rates and you might just sleep better.
I hope everyone has a wonderful weekend.
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