Markets Ignore The April Jobs Report And It's Good News For Mortgage Rates

On the first Friday of every month, the U.S. government releases its Non-Farm Payrolls report.
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 in New Jersey 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, Friday'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.

Mortgage Rates Spike On The Federal Reserve's January 2010 Meeting Minutes

Mortgage markets reeled Wednesday after the Federal Reserve released the minutes from its January 26-27, 2010 meeting. Mortgage rates in New jJersey are now at their highest levels since the start of the year.

The Fed Minutes is a follow-up document, delivered 3 weeks after an official FOMC meeting. It's a companion piece to the post-meeting press release, detailing the debates and discussions that shaped our central bankers' policy decisions.

The Minutes is a terrific look into the Fed's collective mind and, yesterday, Wall Street didn't like what it saw. Specifically, the report disclosed that:

1. The Fed plans to break support for mortgage markets after March 31, 2010
2. Raising the Fed Funds Rate will be a key part of the Fed's strategy to tighten monetary policy
3. The fundamentals behind consumer spending strengthened modestly

Furthermore, the Fed Minutes said that there is a growing risk of "higher medium-term inflation". Inflation, of course, is awful for mortgage rates.

Overall, the Fed's economic optimism appeared stronger after its January meeting as compared to its December one. A stronger economy should lead to better job growth and higher home prices throughout 2010.

Mortgage rates were up yesterday but they remain historically low. And many analysts think that after March 31, 2010, rates will rise even more. Therefore, if you're buying a home in the near-term, or know you'll need a new mortgage, consider moving up your time frame.

Every 1/8 percent makes a difference in your household budget.

Upon Closer Inspection, The Federal Reserve Isn't 100% Positive About The Future Of The Economy

Both mortgage rates and home affordability took a turn for the better in Philadelphia and surrounding areas last Wednesday after the Federal Reserve released its December 15-16, 2009 meeting minutes.

The Fed Minutes is a follow-up piece to the post-FOMC meeting press release. But whereas the press release is succinct and to-the-point, the minutes are lengthy and often meandering.

As a comparison, December's press release contained 535 words. December's minutes had 6,260.

But these "extra words" aren't superfluous. They're actually very important to homeowners. Because the Federal Reserve's internal debates help to shape Wall Street expectations, it doesn't take much for those conversations to have a trickle-down effect on Main Street.

For example, after the December meeting, the Fed said that economic growth is steady, inflation is in check, and an orderly wind-down of mortgage market support was underway. A look at the minutes, though, showed some disconnect.

Some Fed members believe rising commodity prices could lead to stronger-than-expected, and others think that improvement is housing could be "undercut" by a pull-back in government stimulus.

Overall, the Fed appears optimistic about the economy, but not as optimistic as on December 16. Mortgage markets responded favorably to the minutes and mortgage pricing improved.

Although rates remain higher as compared to early-December, pricing has been on a good run this week. If you're under contract for a home in Pennsylvania or just looking to refinance, now may be a good time to lock.

Retail Sales Dropped In December And Now So Are Mortgage Rates

Mortgage rates are dropping this morning on weaker-than-expected Retail Sales data from December. Lower rates means more bang for your home-buying buck.

Excluding motor vehicles and parts, December's "ex-auto" sales receipts were down roughly $500 million from November. Analysts had expected receipts to grow.

The relevance of Retail Sales to home affordability isn't obvious, but it's definitely logical.

Retail Sales is directly related to consumer spending and consumer spending accounts for the majority of the U.S. economy. When consumer spending slows, the economy often does, too. It leads investors to seek out "safe" investments.

It's the reason why stock markets often drop on weak economic data -- stocks are among the riskiest investment classes available.

Conversely, the best place to find safety is in the market of government-backed bonds. This world includes products like U.S. Treasuries and many of the mortgage-backed bonds that help set mortgage rates for people in Philadelphia. Weak economic data puts mortgage bonds in demand.

For rate shopper, this is good news. More demand for mortgage bonds causes mortgage rates to fall. Mortgage rates are lower this morning because Wall Street is shedding some risk.

December's Retail Sales report closes out a year of generally-weak data. 2009 marks just the second time that Retail Sales fell year-over-year since the government started tracking it 40 years ago. The other year was 2008.

For home buyers in Philadelphia and around the country, though, today may represent an opportune time to lock a mortgage rate. Housing data is still improving and other economic indicators are showing strength. Soon, Wall Street will shift from a "safe" mentality and move toward risk.

When it does, mortgage rates will rise.

Looking At The 2010 Predictions For Housing Markets And Mortgage Rates

2010 is just a few days old and already the "experts" are making predictions for the year.

Housing calls and mortgage rate predictions run the gamut:

• Home prices will fall in 2010
• Home prices will rise in 2010
• Mortgage rates will rise in 2010
• Mortgage rates will rise by a lot in 2010

Given how varied their outlooks, it's clear that the professionals have no better view of the future than the amateurs. An expert can make an educated guess, but it's a guess nonetheless.

Last year, Wall Streeters predicted a 25% pullback in home prices. 12 months later, we know prices didn't fall. Wall Street also predicted higher mortgage rates for 2009. That prediction was fulfilled.

In a recent article in Real Estate Trends, it was predicted that the Philadelphia market would appreciate at a rate that would make it one of the top 20 markets in the country. And based on the early activity this year, demand for our moderate priced housing may well lead to increased prices.

There's a lot of talk on CNBC and elsewhere about what's coming in 2010. Before you take those predictions to the bank, just remember that analysts do a much better job interpreting data from the past than projecting it into the future.

The only thing that's certain right now is that mortgage rates are historically low, the government is giving tax credits to qualified buyers, and there's a lot of good "deals" in housing. Make the most of what's out there today because it will take 12 months for us to look back and know which predictions were right and which were wrong.

Until then, predictions are just opinions and guesses.

Why the Recession is the Buyer's Friend

After a weak holiday shopping season, annual retail sales declined in 2008.

It marks the first annual Retail Sales decline since the government started tracking the data 40 years ago.

It also gives credence to the notion that the U.S. economy is suffering through a deeper recession that previously thought. A pullback in spending -- especially during the shopping-heavy month of December -- highlights the cautious nature of today's American shoppers.

And in a strange sort of way, all of this may end up being good news for spring home buyers.

Because Retail Sales are reflective of consumer spending, a dramatic pullback helps to keep the economy in slow gear, countering the inflationary impact of government stimulus and direct intervention. Inflation, you'll remember, causes mortgage rates to rise. Its absence, therefore, helps to keep mortgage rates low.

In addition, it's earnings season on Wall Street and weak corporate guidance has spurred a 6-day decline in the Dow Jones Industrial Average. As dollars leave the stock market, investors are parking them in the safer world of bonds. This includes mortgage bonds, of course, which further pressures rates lower. And of course, lower rates make housing, at any price more affordable for any buyer.

As a result, economic weakness -- to a point -- can be the friend of a person in need of a new home loan. For active home buyers or people entering the market this spring, therefore, the timing may be just right, with affordable prices in our market combining with these lower rates to make the potential housing cost better than it will probably be in the future as the economy recovers spurring sales and reducing inventory.

(Image courtesy: The Wall Street Journal Online)

Lower Gas Prices Helps Sell Houses

For the 78 consecutive days, gas prices fell nationwide through December 3rd. At $1.81 per gallon, the average price at the pump is less than half what it was at its peak in July.

And although gas prices vary by locale, the cost of a fill-up is worthy of national news.

The main reason why national gas prices matter is because of something called the Wealth Effect -- people's tendency to spend more money when they have a perceived feeling of being worth more.

Low gas prices can amplify the Wealth Effect, leading to higher levels of consumer spending nationwide -- the primary driver of the U.S. economy.

But more important than the Wealth Effect is the reverse Wealth Effect. That's when consumers have a perceived feeling of being worth less and their spending reflects it. This past summer is a terrific example of it.

Soaring gas prices, Wall Street troubles, and negative campaigning constantly reminded Americans of what was wrong with the economy. It follows, therefore, that retail sales figures plunged in September and October. Once the election passed, however, and gas prices fell, a gentle optimism returned.

Not surprisingly, consumer confidence rose in November.

All of this matters to real estate because as Americans regain their confidence and feel more "wealthy", they will be more likely to make "move up" purchase, buy new home appliances, and take other actions that propel the economy forward.

Oh, and mortgage rates trolling at 3-year lows certainly helps, too.

(Image courtesy: GasBuddy.com)

How Mortgage Rates Responded To The "No" Vote On The Bailout Bill

Monday afternoon, the U.S. House of Representatives defeated the $700 billion "Bailout Bill", surprising Wall Street and the world.

The Dow Jones Industrial Average responded by falling 777.68 points -- its largest one-day loss in history and, this morning, every newspaper in America is covering the story as front page news.

Lost in the coverage, however, is how the "No" vote created a terrific opportunity for home buyers and mortgage rate shoppers.

Yesterday, as money fled the tanking stock market, most of it ended up getting parked in the relative safety of government-backed bonds which includes, of course, the mortgage bonds. This rising demand for mortgage bonds caused rates to fall, improving home affordability.

To investors, stock markets represent risk and bond markets represent safety. So, when market sentiment changes, as it did yesterday, Wall Street players often shift their dollars from one forum to the other. This is why yesterday's stock sell-off was good news for mortgage rate shoppers -- the added demand for "safe" securities drove down rates.

Conforming mortgage rates were lower by about an eighth-percent Monday.

Now, today, mortgage rates are opening flat, suggesting that markets are in a Wait-and-See Mode. Wall Streets knows that the defeated bill will re-emerge later this week and, when it does, expect traders to respond accordingly.

If the new-look bill is viewed as favorable to U.S. businesses without harming taxpayers, expect stock markets to improve and mortgage rates to rise. If the bill fails to accomplish that goal, however, expect mortgage rates to improve.

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