Friday, December 6, 2013 - Article by: James Brooks - Polaris Home Funding Corp -
By James Brooks
The stock markets are showing sizable gains with the Dow up 126 points and the Nasdaq up 21 points. The bond market is currently almost unchanged from yesterday's close, but we still should see a slight improvement in this morning's mortgage rates.
This morning's big news was the release of November's Employment report that showed the U.S. unemployment rate fell from 7.3% in October to 7.0% last month. This was lower than the 7.2% that was expected and the lowest rate we have seen since November 2008. The payroll number added to the theme of employment sector strength with 203,000 new jobs when analysts were expecting around 188,000. Upward revisions to September and October only netted 8,000 more jobs than previously announced. And the average earnings readings pegged forecasts with a 0.2% increase.
The second report of the morning was October's Personal Income and Outlays that showed a 0.1% decline in income and a 0.3% increase in spending. Forecasts were calling for a 0.3% increase in both readings, so the income data was a sizable miss. That makes the data favorable to the bond market and mortgage rates because smaller income levels mean consumers have less money to spend.
Lastly, December's preliminary reading to the University of Michigan's Index of Consumer Sentiment came in just before 10:00 AM ET at 82.5. This was considerably higher than the 75.1 that was expected and was November's final reading, meaning surveyed consumers were much more confident in their own financial and employment situations than many were expecting. That translates into higher expectations for consumer spending, making the data negative for the bond market and mortgage rates.
Overall, I believe the bond market has fared pretty well this morning considering the importance of the Employment data. It appears that some traders were expecting to see larger gains in jobs than forecasts were showing, so the gains that we did see didn't look so bad. This week's ADP employment report showed sizable upward revisions to previous payroll numbers, so the lack of seeing the same in today's government report can also be considered a positive for bonds. But what I think is preventing a highly negative morning more than anything else is the fact that the benchmark 10-year yield broke above 2.90% earlier this morning, which looks to be a strong resistance level. I don't think we are completely out of danger yet in terms of rising mortgage rates, but at this level I would feel a little more comfortable floating a rate than I have been over recent weeks. I have been calling for yields to rise to this range before we would likely see a downward trend in mortgage rates again, so it is time to review recommendations for a possible shift to a less conservative stance.
Next week has only a couple pieces of economic data scheduled for release, but they are considered highly important and will be posted the latter part of the week. There are also a couple Treasury auctions that are known to be influential to mortgage rates the middle days. I don't see anything of importance set for Monday, so we can expect weekend news and possibly this afternoon's trading to set the opening tone for the week.
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... Lock if my closing was taking place over 60 days from now.
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