This morning we got the release of the official jobs numbers from the Bureau of Labor Statistics. Decembers non farm payrolls showed a loss of 524k jobs when economists where expecting a 500k loss. In addition, November’s payrolls were adjusted lower by an additional 50k jobs and October’s numbers were revised lower by an additional 100k jobs. In 2008, our economy lost 2.6million jobs, ouch!! But we get revisions to December’s numbers next month so expect the total numbers of jobs lost in 2008 to increase even higher. The unemployment rate also moved higher then expectations to 7.2%, expectations where for a 7% rate. Currently 11.1 million people are looking for a job which is the most since 1983. So, the employment outlook continues to be very weak. How does this effect mortgage backed securities? Well, first of all worse then expected economic data is generally a plus for mbs as investors decide to not invest in stocks but rather they invest in fixed income investments such as mbs. This drives the price higher, which lowers mortgage rates. Next, with more people unemployed, companies do not have to attract new employees by offering more money they just have to offer a job. This keeps wage based inflation down. Inflation is the mortal enemy to mortgage rates as higher inflation leads to higher mortgage rates. Lastly, employers do not have to give current employees raises as an incentive to keep them, where will they go if they don’t offer a raise? So, the jobs numbers will keep wage based inflation in check which is a huge positive for mortgage backed securities.
Yesterday was a pretty uneventful day for mortgage backed securities as we closed at about the same level we opened. So far this morning, we are holding steady from yesterday’s level as well.
Should you lock or float? Our opinion is to float as we are transitioning from the January coupon to the February coupon next week. This transition should help lenders pass along lower rates. I do not want to get into much detail on the coupon rollover as it is pretty advanced and this blog is intended for consumers.
I am getting many comments and emails from readers asking if they should put off a refinance or a purchase to let rates go lower. I do not advise that you do that. If you are buying or considering refinancing, get moving on it now. Yes, rates will move lower, but things could happen outside of your control that could disqualify you from getting approved. My advice is if your loan is in processing, float until you get a clear to close from lender, then lock and move on. You should, with good credit, be able to get a conventional loan under 5%. Anytime you can lock a rate under 5% for 30 years, that is hard to pass up.