Mortgage rates continued to hold steady yesterday as prices of mortgage backed securities slowly inched higher yesterday. AQ and MG were discussing the supply and demand dynamics of the MBS market yesterday, citing several reasons for the stable range being held by MBS coupons, even as benchmark 10 year Treasury rates held near recent highs. HERE is an explanation of the logic behind MBS stability. A few lenders who were pricing loans conservatively in the morning eventually repriced for the better by afternoon.
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, yesterday the House of Representatives also passed the bill which in effect extends the tax credit through April 30th. Well, President Obama just signed the legislation into law. To read more, check out the MND STORY.
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 worker's 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, albeit 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, the unemployment rate moved into double digits for the first time since the early 80’s, up 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 were revised for the bette, from -263,000 to -219,000.
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.
Following the data MBS prices ticked higher as Treasury rates fell, however since then the markets have been volatile. Reports from fellow mortgage professionals indicate that the par 30 year fixed 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.
While price action has been volatile so far this morning, MBS continue to hold in the middle of the recent trading range. Because the Employment report was friendly to the fixed income sector, I am switching my outlook from lock to float. However, because we are seeing better rates this morning, there is nothing wrong with locking today to take advantage of overnight and morning improvements.
I hope everyone has a wonderful weekend.