Bouncing off the Ceiling – The Conflict Between Poor Economic Data and Record-Low Rates
ADP says employers cut 10,000 jobs; Unemployment claims over 470,000; Employment situation report tomorrow – Daily Mortgage Rate Update for September 2nd, 2010
After a weak report from ADP yesterday, and continued high levels of unemployment claims reported today, you might expect mortgage rates to once again test new lows. Yesterday, payroll firm ADP released its private payrolls survey, indicating that private employers had cut 10,000 jobs in the month of August. Economists had hoped to see between 40-50,000 jobs added, so the lost of jobs was quite a shock to their estimates.
Today, the weekly unemployment claims report showed a slight decline in weekly claims over last week, but a continued high level of claims, at 472,000. This number suggests that the economy has not been able to restart the hiring needed to put millions of unemployed Americans back to work. In general weekly claims above 450,000 are considered to indicate an overall decline in employment. Bear in mind that, even in the boom years, 2004-2005-2006, it was quite common to see 300,000 weekly claims for unemployment; not all of these layoffs are due to the economic situation, but clearly a large number are.
With this news, you might expect securities markets to be moving towards the safety of long-term treasuries and other fixed income securities, however, it is not. If anything, mortgage pricing is worsening somewhat today, and the reasons for it aren’t entirely clear. While pricing was slightly worse yesterday, that was caused by news about strong economic results in China and Australia. Today, though, there are no offsetting reports. Rather, I think traders are looking at the meager decline in claims as a positive sign.
My feeling, though, is that it’s not. Rather, I think it is one more piece of evidence that tomorrow’s non-farms payrolls report will be worse than expected, probably showing overall lost jobs in excess of 150,000, and private sector employers adding 25,000 or fewer positions. There have been signs for weeks that employment is not growing, especially the consecutive weeks of >450,000 unemployment claims dating back to July.
The bottom line is, rates aren’t improving this week, not because economic data doesn’t support it, but because they can’t. When a 7-10 year investment yields between 2.5-4%, many investors will question the point of making such an investment, and will often look to other-higher yielding options. Corporate bonds may be quite attractive right now due to their higher yields and the strong profit figures many corporations are returning. Mortgage and Treasury rates are so low that only continued poor economic results can keep them there.
Which is a problem it appears we may have for some time.
In spite of sitting at a “rate ceiling” (floor?), there is still no rush to lock rates on in-process applications. If I am correct, pricing should improve tomorrow, or, at the worst, not seriously deteriorate, allowing borrowers and loan originators to take advantage of the biggest opportunity currently available to them: shorter lock-in periods. While there is some anxiety about tomorrow’s report, I feel it is still ok to consider floating loans closing more than 15 days from now.
Tomorrow’s job report will likely provide definition to an uncertain market; the question is, which definition will it provide? If you have questions regarding Rhode Island Refinance Rates, or whether or not to lock your loan, please don’t hesitate to contact me by cell at (401) 263-8655. Have a great day!
Related articles:
Weekly Recap for August 23th-27th
Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and serves as an Adjunct Professor of Finance and Economics at Roger Williams University and the University of New Haven. He has been helping homeowners and homebuyers with their mortgage questions for over 10 years.
September 2, 2010 by Dan Hartman · 2 Comments
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I have worked as a residential mortgage advisor since February of 2000 and a part of the founding team here at Province Mortgage. We believe that by doing right by a family today, we can create a relationship for life, and, hopefully, and ambassador who will share the experience with others. It is our team of professionals that helps us to create this experience.
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[...] under close scrutiny for the role they must play to bolster the economy through hiring. After the ADP survey Tuesday showed private employers cutting positions, many economists toned down expectations for growth, [...]
[...] than today. This is indicative of the volatility in today’s market, especially with the record low yields currently being paid by mortgage-backed securities. The correct strategy for rate locks at the [...]