"The spotlight's hitting something that's been known to change the weather." Elton John. The Jobs Report always has the power to change the "weather" for the markets and home loan rates. Read on to learn what May's report revealed.
The Labor Department reported that 217,000 new jobs were created in May. This was in line with expectations, though a decrease from the 282,000 job creations that were reported in April. The Unemployment Rate remained steady at 6.3 percent, the lowest level since September 2008.
However, digging further, it's important to note that many low paying jobs dominated the new hires in healthcare, bars and restaurants. In addition, the Labor Force Participation Rate (LFPR) was unchanged at 62.8 percent, matching a 35-year low. 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. All in all, the Jobs Report for May was a decent one, but nothing that will push the nation into full employment.
In housing news, research firm CoreLogic reported that home prices, including distressed sales, rose by 10.5 percent from April 2013 to April 2014. April marks the twenty-sixth consecutive month of year-over-year home price gains. However, as CoreLogic noted, "The weakness in home sales that began a few months ago is clearly signaling a slowdown in price appreciation. The 10.5 percent increase in April, compared to a year earlier, was the slowest rate of appreciation in 14 months."
What does this mean for home loan rates? Mortgage Bonds continue to remain at some of their best levels of the year, thanks to the weakened Euro, the Fed's Bond-buying program and the tepid economy. Since home loan rates are tied to Mortgage Bonds, as Bonds improve, rates improve. In recent weeks, home loan rates have hit 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 second half of the week heats up with several key reports.
• Economic data is on the light side this week and doesn't begin until Thursday's release of weekly Initial Jobless Claims.
• Also on Thursday, Retail Sales for May will be released.
• On Friday, the Producer Price Index for May will be closely watched after April's numbers revealed inflation pressures.
• Preliminary Consumer Sentiment for June will also be reported Friday.
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. Bonds rallied late in the week, helping home loan rates remain near historic best levels. I'll be watching closely to see if additional rallying continues.
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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