Rate Lock Advisory – Friday Oct. 5th

Friday’s bond market has opened in negative territory following stronger than expected employment news that indicates the sector is stronger than previously thought. As expected, the stock markets are reacting favorably to the same data, pushing the Dow higher by 52 points and the Nasdaq up 12 points. The bond market is currently down 14/32, which will likely increase this morning’s mortgage rates by approximately another .125 – .250 of a discount point.

The Labor Department gave us this morning’s major economic news with the release of September’s Employment report. They announced that the national unemployment rate stood at 7.8% last month, down from 8.1% in August. This was well below forecasts of it remaining at 8.1% and the lowest rate since January 2009, strongly hinting that the employment situation is improving.

They also said that 114,000 new jobs were added to the economy during the month, falling a little short of the 120,000 that was predicted. That isn’t enough of a miss to cause much concern or optimism in the markets. However, a sizable upward revision to August’s payroll number (46,000 more jobs) shows that the sector was stronger than thought back then also.

It is hard to take much negative from this report, clearly making it bad news for the bond market and mortgage rates. Even average earnings data showed a larger than expected increase, meaning workers have more money to spend that raises wage inflation concerns also. The end result is a strong morning for stocks and bad day for mortgage rates.

Yesterday’s release of the FOMC minutes actually did give us a bit of interesting news. The committee mostly agreed that some type of additional stimulus was needed to keep the economy growing. The one thing that stood out the most in the minutes was discussion of possibly posting set target thresholds in different aspects of the economy that would need to be met before the Fed would start raising key short-term interest rates. For example, particular unemployment and inflation rates would trigger a change in monetary policy (higher rates). This was not finalized, but the minutes did show that the idea had a lot of support and could come to fruition in a near future FOMC meeting. What this means is that we could be better able to predict the Fed’s next move, also taking away some of the anxiety (and market volatility) over the FOMC meetings. Stay tuned for more discussion on this topic as we get closer to the October 23-24th meeting.

Next week is fairly busy with a couple of relatively important economic reports, but they are all scheduled for the middle and latter parts of the week. A couple of Treasury auctions will also contribute to movement in bond prices and mortgage rates. The bond market is closed Monday in observance of the Columbus Day holiday, so we likely will see little change in rates from this afternoon’s pricing. The stock markets will be open for business Monday. Look for details on next week’s calendar in Sunday’s weekly preview.

If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Lock if my closing was taking place between 8 and 20 days… Lock if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

©Mortgage Commentary 2012