Province Mortgage

Employment Situation Prediction for May 6th, 2011

April private payrolls expected up 170,000; Labor-force participation rate at multi-decade low; Unemployment rate expected to rise to 9.0%

A meaningful correlation exists between the ADP Private Payrolls report and the Bureau of Labor Statistics monthly Employment Situation Report. I have used data from the past 5 years reports to develop a prediction for tomorrow’s Employment Situation Report.

Economic data in December, January and February suggested that the economic recovery was consolidating its momentum. Data turned slightly more mixed in March, as major natural disasters in New Zealand and Japan, and war in Libya have sapped consumer confidence and caused a sharp spike in energy prices. In the meantime, US manufacturing data showed continued growth and a healthy manufacturing environment, suggesting that employers may be hiring for those positions again.

Data in April have been substantially more mixed. While manufacturing continues to remain strong, unemployment claims have spiked to the highest level in 2011, and the outlook for services has worsened. Productivity remains strong, another indicator that businesses are getting more work from the same number of employees. Throughout April, commodity prices remained elevated, although this reversed sharply on May 5th with a 10% decrease in prices for oil, and similarly large changes in prices for gold, silver, and other precious metals. Federal Reserve Chairman Ben Bernanke suggested in comments he gave April 27th that he believed the spike in prices was transitory; while this is only a single day’s trading, a continued downward trend in prices would confirm his assertion.

Yesterday, ADP released its survey of employers, stating it believed 179,000 payroll jobs were added in April, 2011. This represented a significant decline in job creation from that firm’s revised estimate of 207,000 jobs added in March, 2011. This is the first time in 2011 that estimate has been below 180,000. While 179,000 new positions still represents meaningful growth in jobs, it is not enough to meaningfully reduce the unemployment rate.

My models produced reliable predictions ranging from 159,000 to 194,000 jobs added in April, based on this data. Recent data suggests that the result of tomorrows employment situation report will fall to the lower end of that range, especially the sharp increase in unemployment filings, which often lag the termination or layoff by 1-2 weeks. My data have retained strong statistical significance over the long term. That significance is returning over the short term, and data for one of the data sets used achieved sufficient significance for inclusion in this estimate. After review of available data, I have developed a prediction that tomorrow’s report will show 170,000 jobs were added to private payrolls in March.

Governments continue to cut positions, however, given the magnitude of government job cuts in 2010 and the first few months of 2011, it appears unlikely that trend will continue. I believe government layoffs will still result in the reduction of the total non-farms payrolls to 168,000.

The official unemployment rate declined to 8.8% in March as over 300,000 Americans reported they had started work. Still, labor force participation remains exceptionally low, and will likely result in challenges in reducing the unemployment rate, as discouraged workers come back into the labor force. Given other conditions, especially high gas prices, the return will not be strong in April. For tomorrow, the I expect the reported unemployment rate to increase to 8.9%

Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates of Providence, RI, and has more than 10 years experience in the mortgage industry. He also serves as an Adjunct Professor of Finance and Economics with Roger Williams University and the University of New Haven. Extensive data was researched and compiled by Thomas Khoudary of Providence College.

May 5, 2011 by · Leave a Comment

Employment Situation Prediction for April 1st, 2011

Non-farms payrolls expected up 170,000; Will discouraged workers return? Unemployment rate depends on them

A meaningful correlation exists between the ADP Private Payrolls report and the Bureau of Labor Statistics monthly Employment Situation Report. I have used data from the past 5 years reports to develop a prediction for tomorrow’s Employment Situation Report.

Economic data in December, January and February suggested that the economic recovery was consolidating its momentum. Data have turned slightly more mixed in March, as major natural disasters in New Zealand and Japan, and war in Libya have sapped consumer confidence and caused a sharp spike in energy prices. In the meantime, US manufacturing data have showed continued growth and a healthy manufacturing environment, suggesting that employers may be hiring for those positions again.

Last month, the rising price of oil was a meaningful concern for continued growth. At that time oil traded at $105 per barrel. Since then, tensions in Libya erupted, sending that country into civil war, and effectively disabling over 1% of the worlds oil supplies. Significant concerns remain in Yemen, Syria, and other oil producing countries, and the price of oil has remained over $105 per barrel. Oil prices at this level will eventually affect hiring and employment.

Yesterday, ADP released the results of its survey of employers, stating it believed 201,000 private payroll jobs were added in March, 2011. This represented a decline in jobs growth over February’s estimate, but held the 4-month average of 200,000 jobs added that has existed since December. At that time, job markets made a significant break from their trend in 2010, where job gains averaged closer to 80,000 per month.

My models produced reliable predictions ranging from 152,000 to 161,000 jobs added in March. I felt recent data suggest these figures are too low, especially recent unemployment claims filings. Filings have been on a steady decrease since early 2010. For the third month in a row, the correlation between ADP and BLS data did not hold over the short term, although there was a marked improvement. As a result, data from that method was discarded when preparing this estimate. I have developed a prediction that tomorrow’s report will show 170,000 jobs were added to non-farms payrolls in March.

Governments are continuing to cut employment, but recent data suggests that trend is slowing gradually. Reductions in government employment will lower total job additions to 165,000 in March.

The official unemployment rate held in February, declining slightly to 8.9% from 9.0% in January. This is solely the result of the more than 1 million workers who left the labor force in 2010. I predict we will see the unemployment rate tick higher again as those discouraged workers return to the labor force, but it will not happen in March. For tomorrow, the official unemployment rate will hold at 8.9%.

Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates of Providence, RI, and has more than 10 years experience in the mortgage industry. He also serves as an Adjunct Professor of Finance and Economics with Roger Williams University and the University of New Haven. Extensive data was researched and compiled by Thomas Khoudary of Providence College.

March 31, 2011 by · Leave a Comment

Employment Situation Prediction for March 4th, 2011

Non-farms payrolls expected up 210,000; Discouraged workers expected back in significant numbers; Unemployment rate expected to increase to 9.3%

A meaningful correlation between the ADP Private Payrolls report and the Bureau of Labor Statistics monthly Employment Situation Report. I have used data from the past 5 years reports to develop a prediction for tomorrow’s Employment Situation Report.

Recent economic information has shown a decided trend towards continued improvement in the US economy. Recent reports on services, manufacturing, and retail sales, all point to continued strengthening. Consumer confidence reports have also shown stronger expectations. There have been a few reports of improvement in the housing sector, however, those reports have been very weak, principally reflecting a slight bounce from the abysmal lows of late 2010. Employment data has been suspect at best, reflecting continued inability of employers to increase hiring.

Significant concerns have arisen recently with regard to possible dampening of economic growth due to a sharp rise in prices for oil. These increases began in the 2nd week of February, so are unlikely to affect employment data yet, however, a continued elevated level of gasoline prices could affect hiring and the willingness of applicants to accept employment farther from their homes.

Yesterday, ADP reported the results of its survey of employers, stating that its data suggested 217,000 private payroll jobs had been added in February, 2011. This is a greater than 10% increase in net jobs added over the 189,000 ADP believed were gained in January. It is believed that job gains in January were tempered by severe weather in that month.

My models produced reliable predictions ranging from 195,000 to 200,000 jobs added based on the historical ADP and BLS data. For the second month, the ADP and BLS data failed to correlate in the short-term 10-period analysis; in fact the correlation became even weaker. As a result, data from that method was discarded in preparation of this estimate. Over the longer 5-year period, though, there continues to exist a strong correlation between the two data sets. I have developed a prediction that tomorrow’s report will show 210,000 private payroll jobs added in February.

As was seen in Providence today, governments continue to cut employment. Reductions in government employment will cause net job gains to be reduced to 200,000 positions. In addition to these gains, there will also be a revision to prior results which should add a substantial number of jobs, likely 80,000 added to January and December results.

The official unemployment rate fell sharply in January, declining from 9.4% to 9.0%. This was primarily precipitated by an exodus of workers, but also by a substantial increase in households reporting working status. I believe that this may have been caused by temporary fluctuations in survey results. It is likely that this may have reverted in February, which should result in a rise in the unemployment rate, likely to 9.2%.

Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates of Providence, RI, and has more than 10 years experience in the mortgage industry. He also serves as an Adjunct Professor of Finance and Economics with Roger Williams University and the University of New Haven. Extensive data was researched and compiled by Thomas Khoudary of Providence College.

March 3, 2011 by · Leave a Comment

Ensuring a Smooth Closing in 2011

Avoiding problems in underwriting; Keeping a strong credit score; Making sure documentation matches

You’ve probably heard the stories. Stories from people trying to buy homes who have submitted dozens of pages of documentation, only to be met with endless requests for more documentation, excuses, and, ultimately, a loan denial. It’s frustrating, upsetting, and downright insulting what is happening to many families. The worst part of all is, in many cases, it’s avoidable.

It’s true that the market has made things a lot tougher for home buyers. Many difficulties have arisen due to an epidemic of  “buy-backs”, that is, lenders that wrote mortgage loans have been forced to buy them back from investors who purchased them, often for seemingly meaningless reasons, like the wrong date on a pay stub, or a punctuation error on an insurance binder. The result of this is that bank underwriters are much more careful in their review of documents.

Rather than diving too deep into the problem these buy-backs represent, let’s examine some of the problems that have been found, and ways to prevent them affecting your application. One of the most prevalent problems found is matching errors between information shown on various home buyer documents. One client I worked for recently wanted to refinance her home to take advantage of current low mortgage rates. She had owned the home for a few years, but she had never updated some of her important documentation to match the new address. As a result, it appeared from her pay stubs, bank statements, and insurance documents that she still lived at the old address.

It’s very important to promptly update your address with employers, creditors, lenders and banks as soon as possible on moving. While it might not seem to be such a big deal, especially with everything else going on around the time of moving in, this is extremely important to underwriters, and can cause significant delays to your closing. Think about it as a basic part of moving. You unpack all your stuff; update your address, too.

Another area that creates significant additional questions is inquiries in your credit report. You get a credit inquiry every time a company requests your credit for the purpose of granting you credit. Think of it as the banks’ way of tracking where you’re applying for new loans. Most home buyers have very few credit inquiries, often only 1 or 2 related to searching for the right mortgage. This is often not an issue for a mortgage approval.

It can be a different issue altogether when a credit report contains numerous inquiries for various different purposes. A common scenario I’ve seen is when a buyer had applied in the last few months for a card at Old Navy to get the extra 10% one-time discount offered there, then, after getting mortgage pre-approval and a contract to buy, they head to the furniture store.

Many mortgage pre-approvals today are based on very tight margins, where even a small increase in monthly budget can turn an approved loan into a denial. Now, it’s natural to think that you’ll need furniture for your new home, and you probably will! During the mortgage process, though is not the time to get it. You see, underwriters are requiring home buyers to explain any and all credit inquiries that appear in their credit report. If the credit requests turned into new credit accounts, then, those accounts will have to be considered in the underwrite. Even though the the furniture store may be offering no payments for 6 months, future payments will have to be incorporated into budget review.

Another problem that can be caused by credit inquiries is damage to the credit score. Each credit inquiry has  a small effect on credit score, which varies depending on the type of inquiry, and the number of recent inquiries. Mortgage inquiries cause relatively little change (and none if they are subsequent mortgage inquiries within a 21-day period), while credit card, and especially store charge inquiries can do substantial damage. Once you’ve settled on where you’ll be getting your mortgage, it is important to avoid any further requests until after closing.

Tax returns are becoming more and more important in 2011. Prior to 2009, most home buyers didn’t have to supply tax returns with their mortgage applications, but, due to a number of cases of fraud involving falsified tax returns, banks are verifying tax filings of all home buyers today. This means that they will review that information even if it’s not submitted to them. There are a number of ways in which this can delay a mortgage process:

  • Change in filing status (single –> married, for example)
  • Undeclared rental or business income (or, especially, loss!)
  • Unreimbursed employee business expense
  • Certain deductions (mortgage interest when no home is owned, student loan interest when no loans on credit, etc.)
  • Taxes unfiled for one or more years

These, and many other surprises can come from the review of tax returns. If you have any questions about whether your tax return could cause concerns, it would be best to review your returns with your mortgage advisor before finalizing an offer on a home. While most entries on a tax return are relatively innocuous, the degree to which this documentation is currently scrutinized demands an overabundance of caution.

I’ve only scratched the surface of the surprises that can come up during the mortgage process in 2011. Credit inquiries, tax return verifications, and address discrepancies are among the most common challenges seen lately, and most issues there can be mitigated by providing enough documentation and explanations upfront.  Thank you very much for reading our review of this situation. Please feel free to contact us with any questions not answered here.

March 3, 2011 by · Leave a Comment

Employment Situation Prediction for February 4th, 2011

Non-farm payrolls expected up 160,000; Discouraged workers expected to return to labor force; Unemployment rate expected to increase to 9.7%

A meaningful correlation between the ADP Private Payrolls report and the Bureau of Labor Statistics monthly Employment Situation Report. I have used data from the past 5 years reports to develop a prediction for tomorrow’s Employment Situation Report.

Recent economic information has shown a decided trend towards continued improvement in the US economy. Recent reports on services, manufacturing, and retail sales, all point to continued strengthening. There have been a few reports of improvement in the housing sector, however, those reports have been very weak, principally reflecting a slight bounce from the abysmal lows of late 2010. Employment data has been suspect at best, reflecting continued inability of employers to increase hiring.

January’s employment report significantly missed expectations, showing addition of 103,000 new payroll jobs. Most economists had predicted much larger gains, ranging from 150,000-200,000 new jobs. I predicted 255,000 jobs would be added, a substantial miss.

Yesterday, ADP reported an estimate that 187,000 jobs had been added to the economy, further building on the employment momentum built up in December. Still this is a significant decline from the now-revised 247,000 jobs ADP estimated were added in that month. Several factors may be affecting this, including recent weather patterns.

My models produced reliable predictions ranging from 165,000 to 170,000 jobs added based on the historical ADP and BLS data. This range was tightened because the recent misses in the ADP report caused the 10-period model I have used to lose statistical significance. As a result, data from those methods was discarded in preparation of this estimate. I have developed a prediction that tomorrow’s report will show 160,000 jobs added to private payrolls in January. The net jobs gain is expected to be 150,000, reflecting continued decreases in government payrolls. In addition to these gains, the BLS will provide a revision to the December employment report. I believe these revisions will add few net jobs over the months revised.

While the unemployment rate fell in December, its fall was principally driven by the exit of over 500,000 job seekers from the labor force. I believe a substantial number of these workers will return to their search, thus increasing the unemployment rate to 9.7%.

Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates of Providence, RI, and has more than 10 years experience in the mortgage industry. He also serves as an Adjunct Professor of Finance and Economics with Roger Williams University and the University of New Haven. Extensive data was researched and compiled by Thomas Khoudary of Providence College.

February 3, 2011 by · Leave a Comment

Employment Situation Prediction for January 7th, 2011

Statistics have shown there to be a meaningful relationship between the ADP Private Payrolls report and the Bureau of Labor Statistics monthly Employment Situation Report. Using data from the past 5 years, influenced by recent economic data, a prediction for tomorrow’s report has been developed.

Recently,economic information has shown a substantial trend towards improvement. Retail sales, business climate, manufacturing climate and factory orders have all shown some improvement in December. The only components of the economy that haven’t turned better lately appear to be housing and employment, two categories that are tied closely to each other. Home prices won’t rebound until employment levels improve, meaning that improvements in the employment situation must come first.

December’s employment report was a substantial disappointment. Most economists had expected 140-150,000 jobs be added. Here, I predicted 210,000 jobs would be added. Actual results showed a gain of only 39,000 jobs.

Yesterday’s ADP Private Payrolls report gave a strong indication that December’s jobs report may have been an anomaly. According to the release, 297,000 jobs were added in December. This provides a clear signal that the employment situation is likely improving. Based on this result, and on the recent relationship between the ADP results and the BLS reports, I have prepared a prediction for tomorrow’s report.

My models produced predictions ranging from 256,000 to 486,000 jobs added. Based on available data, I have developed a prediction that tomorrow’s report will show 255,000 private payroll jobs were added in December. The net jobs gain will likely be 250,000, reflecting continuing declines in government employment. In addition to these gains in December, the Bureau of Labor Statistics will also provide a revision to November’s employment figures in the morning. I expect this revision to add 75,000 positions to payrolls.

While the unemployment rate rose in December, the jobs gains my models suggest will be high enough to lower the unemployment rate to 9.6%.

Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates of Providence, RI, and has more than 10 years experience in the mortgage industry. He also serves as an Adjunct Professor of Finance and Economics with Roger Williams University and the University of New Haven. Extensive data was researched and compiled by Thomas Khoudary of Providence College.

January 7, 2011 by · 1 Comment

Mortgage Rates Rocket Higher on Inflation, Fed

Fed reaffirms Quantitative Easing; Inflation sharply higher on PPI, muted on CPI; Manufacturing and industrial activity surveys are strong

Fixed income markets were a train wreck yesterday as inflation numbers came in high, and retail sales strong. The Fed didn’t do anything to help, reaffirming its take that the economy isn’t growing quickly enough, and that it would continue its asset purchase plans. This comes down to the Fed’s dual mandate: low unemployment and controlled inflation. Right now, the Fed sees inflation as under control and below its target level at the moment, and sees unemployment as the bigger problem.

This morning’s inflation stats reinforced the Fed’s position. CPI came in at +.1% for both core and overall today, meaning that prices aren’t rising, according to CPI. According to this expert video,

The food prices are higher than a year ago,

The gas prices are higher than a year ago,

The health care costs are higher than a year ago,

The tuition prices are higher than a year ago,

The taxes are higher than a year ago,

The subway fares are higher than a year ago,

The stock prices are higher than a year ago,

And the bond prices are higher than a year ago.*

*(Bond prices have clearly decreased since the publication of the video.)

However, we do not see that in the CPI right now. Yesterday’s PPI did show some aspects, but CPI today does not. Big drags on the CPI this year have been apparel (-0.8%), household gas (-4.8%), new vehicles (-.4%), and shelter (aka rent, +0.2%). Note that the Bureau of Labor statistics continues to use rent in calculating shelter costs. If it used ownership costs, inflation would have measured much higher in 2003-2007, and deflation would have a firm grip on the economy right now.

The good news is that the low inflation figures this AM took some pressure off bond prices, at least for the moment. The Empire Fed index came out a little while ago, showing a positive environment for manufacturing and putting that pressure right back on. Industrial production also rose. I predicted for my ECON 101 class 3.5% GDP growth in 2010Q4 (due Jan 28 2011) based on all the positive data we’ve seen lately. I stand by that number again on this data.

All lock periods: LOCK.

Bottom line: If things look bad for rates now, they’re probably just going to get worse. Don’t go banging your head against the wall, though. The health care is too expensive.

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 week!

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Last Week’s Report

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.

December 15, 2010 by · 1 Comment

Employers Add Scant 39,000 Jobs in November – A Reprieve for Mortgage Rates

Unemployment rate edges up to 9.8%; Unexpected drop in retail hiring; Private employers add only 50,000 jobs; Mortgage rates at a 4-week high; ISM non-manufacturing due

It appears that labor markets may not be as strong as recent data have suggested. The Bureau of Labor Statistics’ Employment Situation Report was released this morning, showing a mere 39,000 jobs added in November, far below our estimate of 210,000 and other analysts average estimates of 130,000. A surprising drag on total employment was the retail sector. While expansion in that sector would ordinarily be expected at this time of the year, retail employment actually fell 28,100 in the month.

Offsetting the low results slightly was a revision to October’s report adding an additional 21,000 jobs to bring that month’s total to 172,000 from 151,000 previously reported.

Private employers added only 50,000 jobs in November. Most economists are looking to private hiring to pull the unemployment rate down, as it is unlikely governments will be able to do much to increase its own payrolls in the face of increasing pressure to reign in deficit spending. During the worst of the financial crisis, private employers cut over 7 million jobs, and have only recently begun to replace those workers.

The unemployment rate increased to 9.8% as more than 100,000 new or returning workers actively sought work, while total workers employed fell by 173,000. Note that these figures do not coincide with the non-farms payrolls figures. The Employment Situation report covers two separate surveys: an establishment survey that provides the jobs data; and a household survey which provides data used to calculate the unemployment rate.

Today’s unemployment report is the largest item of negative economic news in some time, and the deluge of good news has caused a significant increase in mortgage rates. Yesterday, mortgage firm Freddie Mac reported average 30-year fixed rates of 4.46%, up sharply from the recent low of 4.17%. Still, current rates are better by far than they have been historically, presenting excellent opportunities for home buyers and home owners considering a refinance.

The Institute for Supply Management’s non-manufacturing survey came out moments ago indicating continued growth in line with analyst estimates.

Mortgage pricing will improve this morning, but the reason is an island in a sea of otherwise positive economic data. The dip in rates could be very short lived, so borrowers and loan originators should take advantage of it to get rates locked. I recommend locking all loans at this time provided closing is with 60 days.

Next week will bring a few scattered economic reports and $65 billion in new Treasury borrowing, which should serve as a barometer for markets’ willingness to absorb further supply of government debt. 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:

Daily Update for November 17th

Weekly Recap for November 22nd-26th

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.

December 3, 2010 by · Leave a Comment

Employment Situation Prediction for Friday, December 3rd

Last month, it was asserted here there should be a statistically significant relationship between the results of the ADP Private Payrolls Report and the Total Non-farms Payrolls in the Bureau of Labor Statistics Employment Situation Report. It was established then that there is a strong correlation between the two data sets.

At that time, the data were used as part of a system to predict the results of the upcoming Employment Situation report. Additions of 73,000 private payroll jobs, and 60,000 total jobs were predicted. The actual results of the employment situation report showed 159,000 private payroll jobs added, and 151,000 total jobs, meaning the prediction fell short by 86,000 and 91,000 jobs respectively.

Since the beginning of November, there has been a significant shift in the tone of economic data. While recent inflation figures have shown limited increase in the price level, expectations of future inflation have risen significantly. Meanwhile, manufacturing and business data has shown strength, and jobless claims have fallen. The only aspect of the economy not showing strong signs of growth is housing.

In spite of this recent information, many economists were surprised yesterday when payroll services firm ADP reported 93,000 jobs were added by private firms, and that an additional 39,000 jobs had been added in the prior month.

Using the same methodology as last month, a prediction for tomorrow’s Employment Situation Report has been prepared. Recent trends in the ADP report, and recent economic data, suggest that Private Employers added 225,000 net jobs in November. Total job creation is expected to be 210,000 jobs, as governments continue to cut employment. The unemployment rate is expected to hold stable at 9.6%, but may come under pressure in the near future as discouraged workers begin returning to the labor force.

Dan Hartman is a Senior Mortgae Advisor with Provice Mortgage Associates of Providence, RI, and has more than 10 years experience in the mortgage industry. He also serves as an Adjunct Professor of Finance and Economics with Roger Williams University and the University of New Haven. Extensive data was researched and compiled by Thomas Khoudary of Providence College.

December 2, 2010 by · 3 Comments

Boston Federal Reserve President Speaks in Support of Quantitative Easing

Eric Rosengren clarifies objectives of LSAP; Meets Fed Mandates; Effects already seen in economy

Eric Rosengren, president of the Federal Reserve Bank of Boston addressed the Greater Providence Chamber of Commerce regarding the Fed’s recently initiated Large-Scale Asset Purchase program. Also know as Quantitative Easing, or “QEII”, this program was widely rumored since August, was announced November 3rd, and went into effect last Friday, November 12th. I personally attended the presentation.

Since its announcement, the 10-year Treasury yield, a benchmark for long-term interest rates has risen in yield 4/10ths%.

Rosengren cited the Fed’s dual mandate: maintain low inflation, while accommodating the lowest possible unemployment rate. He explained that, unlike in other cases, current economic conditions allow the Fed to address both issues at the same time. The LSAP is expected to achieve both. In fact, since it first hit the rumor mills after Fed Chairman Benjamin Bernanke’s speech at the Jackson Hole Economic Conference in August, the program has achieved its goals.

Just as a Fed interest rate decrease would be expected to lower long-term rates, boost stock values, and cause the dollar to weaken against other currencies, so too was the LSAP expected to cause the same results. The only difference is the vehicle of that change: in a rate change to the Fed Funds Rate, the Fed buys or sells short-term Treasury bills; in LSAP, the Fed is buying longer-term Treasury notes and bonds.

Since rumor of the programstarted circulating in August, and up until its effects were seen last Friday, mortgage rates declined by about, 0.25%, the Dow Jones Industrial Average rose more than 12%, and the dollar depreciated against other major currencies. The program’s announcement also led expectations of long-term inflation to increase from a level around 1.4% to 2.1% in that time frame, according to Rosengren.

So here’s the bottom line for home buyers and mortgage originators:

We’ve seen about the best we’re going to get out of this program. From here out, the effects will be measured in smaller adjustments to rates. The effects seen last Friday and this Monday are reflective of a common Wall Street phenomenon: buy the rumor, sell the news. That is to say, markets will react to coming events in advance of their occurrence to the poitn where the will often overreact. Then, when the news is proved true, the review their position, find they went too far and react to it.

Mortgage pricing is still worse than it was last Wednesday, the final day of truly good pricing. It’s improved a little in the last two days, in a possible reaction to an overreaction. While the time may come in the next few weeks where pricing stabilizes and it becomes safe to float loans, albeit at a higher rate than 2 weeks ago, at the moment it is still important to lock new loans going into process until that stability comes.

Tomorrow brings weekly jobless claims data, the single best chance out there of seeing a reversal in mortgage pricing. If claims exceed 450,000, mortgage pricing should get better. That said, Eric Rosengren cited the LSAP program with the ability to add 700,000 jobs to the economy and shave 0.5% off of the unemployment rate. Even if claims rise this week, we can’t bet on that going forward. 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:

Daily Update for November 5th

Weekly Recap for November 8th-12th

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.

November 17, 2010 by · 2 Comments

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