Good Morning
Everyone-
Today is Jobs Friday.
If you do not know what that means, the first Friday of every month we have the
Non-Farm Payroll numbers released at 7:30 am eastern.
The Fed reported that
we had 175,000 jobs created in May. Estimates were at 163,000. So why will
mortgage rates be lower today? Two reasons. First there were negative revisions
to the previous months jobs number by 12,000. This means that there were fewer
jobs created than originally thought. Secondly, the unemployment rate did tick
up from 7.6% from 7.5%. Why...think of the time we are in. We just had high
school and college graduations. These workers will be entering the unemployment
numbers. Most of them will likely not have jobs or bot be able to find a job.
Let's face it though,
the past month has not been kind to us in terms of Mortgage Rates. We have seen
rates move up at least .5%. Mortgage Bonds (what rates are based off of) have
lost over 500 basis points over the past month. 500 basis points on a 200,000
loan is a $10,000 loan charge. That is huge.
Why did this happen?
Some Federal Reserve members feel that we should start tapering the QE
(quantitative easing). They have not done it or even started too. Some members
feel that they should though. That is all. With some members of the Fed
thinking they should stop buying Mortgage Bonds, that has caused hedge funds
and pension funds to re-position themselves....thus the huge sell off.
So what is some
advice we can give to clients? The days of the 3.250% are most likely gone. Do
I feel 3.5% or 3.625% will be back? I do. We have unemployment ticking up,
manufacturing slowing, and in case you haven't been watching, Japan has lost
over 20% in there market over the past 2 weeks and Europe is not looking much
better.
Like an good over
reaction, and our 500 basis point sell off is that, we are do for a correction.
We should see rates get better over the next two weeks. The market needed to
see that things are not as good as some members of the Fed think it is. With
negative revisions to previous numbers, and unemployment ticking up, and
just because we have a slightly better jobs number (do to service industry and
not manufacturing) the picture is only slowly getting better. I mean slowly.
The Fed really wants to see 4 months in a row with 200K plus jobs before they
decide to truly step out of the QE department. We are not even close to this.
Talking is the only action going on right now. Unfortunately, talk is not
cheap....especially to the mortgage rates increase.
With all this being
said, stay diligent on the market. Watch it everyday. Remember, Volatility IS
the new normal.
Be aware of your
market, educate your client’s, and let’s close some deals.
Josh
