Mortgage rates held steady near the lowest levels of the year yesterday. That was a dominant theme this week. Regardless of volatility in the stock and bond markets, MBS prices moved quietly sideways in a tight range. Mortgage pricing did manage to improve a few basis points though, only after lenders passed along pricing gains that were due last week though. Unfortunately the rebate offered up wasn't sizable enough to push the par 30yr fixed mortgage rate another 0.125% lower to 4.50%. Not until today at least...

The Bureau of Labor Statistics published the official Employment Situation report this morning.

Released on the first Friday of every month, the official Employment Situation report provides an in-depth look into the health of the driving force behind consumer spending: THE JOB MARKET

The market pays attention to four specific metrics:

  1. Nonfarm Payrolls: totals the number of jobs that were added or cut from employer payrolls in the prior month. Consensus Forecast: +513,000 jobs vs. +290,000 last month
  2. Unemployment Rate: the percentage of working-age, able-Americans who are out of work. Consensus Forecast: 9.8% vs. 9.9% last month
  3. Average Hourly Earnings: how much the average worker earns per hour of work. Consensus Forecast: +0.1% vs. 0.0% last month
  4. Average Work Week – average amount of hours worked by an employee per week. Consensus Forecast: 34.1 hours vs. 34.1 last month

Here are the official results:

  1. Nonfarm Payrolls - Payrolls grew by 431,000 jobs. Worse than expected.  411,000 of those jobs were temporary census taker positions. When removing census jobs, only 20,00 jobs were created in May. In April, 208,000 jobs were created and only 66,000 of those were census takers.  March was revised worse from +230,000 to +208,000. 
  2. Unemployment Rate - 9.7%. Better than expected. The unemployment rate improved largely because of a decline in the civilian labor force (the pool of willing and able workers). People drop out of the labor force because they have been unable to find a job. These "discouraged workers" are not counted in the official unemployment rate. If they were counted the unemployment rate would've been 16.6% vs. 17.1% in April.
  3. Average Hourly Earnings -  0.3% Higher. Better than expected.  This is good news for consumers.  Those who have jobs are making more per hour which gives them more disposable income (or ability to stay current on their mortgage)
  4. Average Work Week - 34.2 hours. Better than expected.  This is also good news for consumers with jobs. An employees who's working more hours at a higher pay rate will bring home a bigger paycheck to spend on goods and services...OR pay their mortgage! 

This report was quite disappointing, but we still found something positive to talk about...

First, the unemployment rate ticked lower, albeit, mainly due to an increase in the number of discouraged job seekers, but the official rate still fell!  This is confidence booster for consumers. The more confident consumers are, the more willing they are to spend their money. Lets just hope the average American consumer doesn't read too deeply into the report and see that 6.76 million Americans Have Been Unemployed For Longer Than 27 Weeks.  That might spook confidence! (+47,000 people in May). It's also important to point out that the average American with a job isn't losing their spending power. The uptick in per hour earnings and the longer work week are a clear positive within the data.

The headline improvement in the unemployment rate was unable to overshadow the WORSE THAN EXPECTED payroll number though. Investors reacted poorly to the fact that only 20,000 jobs were created when removing census taker hiring. While these census worker positions will indeed earn an income that will hopefully be spent in the economy which will hopefully help create more jobs, they are still temporary jobs. Investors would've liked to have seen the private industry play a bigger role in the labor market recovery process.

After the news hit wires stocks sold off and a flight to safety sent benchmark interest rates lower. This led mortgage-backed security prices to new highs of the year which allowed lenders to REPRICE FOR THE BETTER

A flight to safety happens when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate money into risk-free U.S Treasury debt to provide a safe-haven AND an investment return. To remind readers, as benchmark Treasury yields fall, prices of mortgage-backed securities move higher, which allows lenders to offer lower mortgage rates. As Treasury yields rise, mortgage-backed security prices are led lower, which forces lenders to push mortgage rates higher.

Mortgage rates are back at the lows of the year again.

The par 30 year fixed conventional mortgage rate is firmly in the 4.625% to 4.875% range for well qualified consumers. Some lenders are even offering 4.50% at par, but that will cost more at closing.  To secure a par these rates on a conventional mortgage 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.  You may elect to pay less in costs but will have to accept a higher interest rate.  A no cost loan should be in the 5.375% to 5.5% range.  A no cost loan is a great option for consumers who do not plan on keeping the current home for more than 5 years. 

With pricing as aggressive as its been all year, I find it hard to pass on these mortgage rates.

Have a great weekend!