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John Williams
Strategy First Mortgage
Office: 916-390-9467
Email: john.williams@sfmmail.com
website: www.strategyfirstmortgage.com
NMLS#:
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| Monday, February 10, 2014 | ||
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Why does the Non-Farm Payroll report affect mortgage rates?
On Friday, the Non-Farm Payroll report came in much weaker than expected (134k new jobs vs the estimates of 185k), and helped stabilize mortgage rates once again. Have you ever wondered why a single report could have such a huge effect?
The non-farm payroll figure (a.k.a. NFP) represents the number of jobs added or lost in the economy over the last month, not including jobs relating to the farming industry. The farming industry is not included because its seasonal hiring distorts employment numbers around harvest time. Non-farm payroll is an important day trading indicator because it affects all markets; the job market impacts the FX, bonds, stocks, and derivatives markets. From a basic economic sense, when the NFP shows an increase in jobs it means the economy is doing well. An increase in employment means that companies are growing, and a secondary benefit is that the newly hired workers will have more money to spend on goods and services. A decrease means that the opposite is true. NFP and the overall job market have become key indicators for traders and that is reflected in the market’s sensitivity to the non-farm payroll report. The report includes the unemployment rate, what sectors have increased or decreased their workforce, what the average hourly earnings are, and any revisions that need to be made to prior reports. So why does it help mortgage rates? To put it very simply, a poor report highlights the lack of economic growth. Lack of economic growth is good for bonds, including MBS (mortgage-backed securities), the key driver to mortgage rates. So when a report comes in showing weakness, like Friday’s did, traders are more likely to buy bonds including MBS which helps mortgage rates.
The question now is how long will the effect last? Likely not long, as this week has lots of economic data for traders to digest. Be sure to stay in contact with your mortgage professional above to monitor mortgage rates through the week.
Last Week’s Mortgage Rate Recap
Mortgage Rates Currently Trending: Slightly Higher
Last week saw rates slightly higher at the end of the week after starting the week off with a strong rally on Monday. Rates deteriorated through the week, and finally stopped worsening on Friday with the release of the weaker than expected jobs report (Non-Farm Payroll Report).
This Week’s Mortgage Rate Forecast Mortgage Rates Forecast: NEUTRAL
This week we are starting off with no economic data on Monday, but interest events through the rest of the week. The biggest event will be Janet Yellen’s first testimony as the Fed Chair, followed by the 10 year Treasury auction. The biggest report of the week will be Thursday’s Retail Sales report.
BOTTOM LINE: Work closely with your Mortgage Loan Professional to monitor the market in real time to stay ahead of a reversal and the worse rates that will come with it.
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John Williams
Strategy First Mortgage
Office: 916-390-9467
Email: john.williams@sfmmail.com
website: www.strategyfirstmortgage.com
NMLS#:
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| Friday, February 07, 2014 | ||
What’s on the agenda for today?MBS OVERVIEW ECONOMIC DATA
What happened yesterday? MBS OVERVIEW We had the potential for some real volatility out of the European Central Bank (ECB) but they left their key interest rate unchanged and didn’t announce any real shift in policy. Essentially, MBS moved in a narrow range as there has not been enough negative economic data to cause traders to think that Friday’s NFP will be weak. Nor has there been enough positive economic data (plus the head winds of cold weather) to support a better than expected report. ECONOMIC DATA THE TECHNICALS ACROSS THE POND The Bank of England (BOE) left their key interest rate unchanged and so did the European Central Bank (ECB). More importantly, ECB President Draghi did not pull the trigger on their version of QE which would have caused some major volatility in our bond markets. |
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Why is the Fed FOMC Meeting this week such a big deal?
This week all eyes are on the Federal Open Market Committee meeting, as the market waits for the Federal Reserve’s tapering decision. Both the FOMC policy statement and its up-to-date economic and market projections will be released on Wednesday at 2 p.m. EST, followed by Fed Chairman Ben S. Bernanke’s press conference at 2:30 p.m. EST.
Why is this all such a big deal?
In the real estate world, we are watching to see if the Fed begins tapering – the term used for cutting back on the purchases of Treasuries and MBS (Mortgage Backed Securities) that constitute the current round of quantitative easing, known as QE3. To oversimplify it, if the Fed begins tapering, it will likely drive mortgage rates up further.
So why is the Fed looking to taper these purchases now, and how likely is it that they will do so on Wednesday?
It all has to do with the health of the economy – the Fed needs to stop QE3 sometime, and it appears that the economy is showing enough signs of strength that now would be the time to begin. Specifically, how swiftly the Fed cuts its QE purchases will depend a lot on the evolution of the labor market. The Fed announced its most recent round of QE in September of last year, and it has been buying $85 billion a month since January ($45 billion in Treasuries, $40 billion in MBS). Recent economic data has shown signs that the economy is improving, and that jobs are stabilizing. Economic stability and improvment is exactly what the Fed has been waiting for to pull the trigger on tapering (which they did NOT do in September’s meeting).
So what to do now?
Be prepared for lots of interest rate volatility this week as the markets work to stay ahead of the Fed moves and speculation abounds. Keep in close communication with your favorite Mortgage Loan Professional and have them keep you abreast of what happens throughout the week.
Last Week’s Mortgage Rate Recap
Mortgage Rates Currently Trending: NEUTRAL
Last week saw rates remain mostly flat, with most lenders worsening rebate pricing (the cost to obtain a rate or the credit the lender gives you towards your closing costs when selecting a rate) as MBS (Mortgage Backed Securities) sold off a net loss of -35 basis points. Most consumers would have seen their offered mortgage rate remain the same, but would have gotten a lower amount as a credit towards closing costs or would have paid a little bit more to obtain the same rate. The week started with a nice bounce back from the lows we experienced the week before. Wednesday was a bad day for rates as the MBS market sold off, giving back the gains from Monday and Tuesday. Thursday continued the sell off slightly, until we saw a reversal and a positive day for pricing on Friday. It’s important to note that since November 18th, we’ve lost about 230 basis points in the MBS market, meaning that traders have priced themselves towards a Fed tapering.
This Week’s Mortgage Rate Forecast
Mortgage Rates Forecast: VOLATILE, and heavily dependent on Wednesday’s FOMC announcement
This week is going to prove to be volatile and hard to predict, both before the Fed’s FOMC announcement on Wednesday, as well as after depending on what the Fed announces. There is a large consensus that the Fed will announce their intent to begin tapering. If that does occur, we may very well see more selling off in MBS, even though the market has already been pricing that in. If the Fed announces that they are not yet ready to taper, as happened in September, the market should react very positively and MBS pricing will improve along with mortgage rates.
BOTTOM LINE: It is very important this week to stay in contact with your Mortgage Loan Professional, especially on Wednesday when the Fed makes their announcement. If they announce tapering, be prepared for rates to go up slightly. If they announce they will not yet taper, it is likely that rates improve anywhere from .125% to .250%. The only way to stay ahead of lenders who will raise interest rates when that happens is to stay in close contact with your LO who is monitoring the market in real time with an institutional grade Wall St. data feed. Be prepared for volatility later this week.
FHA Announces New Loan Limits for 2014, Did Your Market Get Lower FHA Loan Limits?
The Department of Housing and Urban Development (HUD) released Mortgagee Letter 13-43 on Friday, which contains the maximum loan amounts eligible for FHA mortgages in 2014. The standard FHA loan limit for areas considered to have low housing costs will remain at the current $271,050, but 650 areas deemed higher cost will now have their maximum loan sizes reduced due to FHA reducing the maximum loan limit for high-cost areas from $729,750 to $625,500. That means that if your county is one of those 650, your consumer will need a lower loan amount to qualify for FHA financing.
Which counties are affected?
Here are two links to HUD’s own documents showing counties at and above the FHA national loan limit ceiling, as well ascounties with FHA loan limits between the national floor and ceiling. If you do not see your county on either of these lists, reach out to the Mortgage Loan Professional that sent you this report for more information on your local area.
How were these numbers calculated?
Leave it to the Federal Government to create a complex formula for calculating maximum loan amounts. This year is the first year that calculations will be fully implemented that were created by the Housing and Economic Recovery Act (HERA). The actual formula can be referenced directly in HUD’s Mortgagee Letter 13-43 on the 3rd page.
What should you do?
Make sure that if you have a borrower that needs the higher loan amount that they work with your favorite Mortgaged Loan Professional that sent you this report to obtain an FHA case number BEFORE the end of the year to be eligible for the current loan amounts.
Last Week’s Mortgage Rate Recap
Mortgage Rates Currently Trending: HIGHER
Last week saw rates worsen as every day but Friday MBS (Mortgage Backed Securities) sold off. The reason for the sell off was the economic data that was being released was continuing to point to economic recovery, which has traders speculating for the Fed to begin tapering bond purchases that are part of QE3 much sooner than anticipated. All of the talk of the government shutdown slowing the economic recovery has all but disappeared. We broke through the support level of 100.86, and even broke through the next support level of 100.00, but have since recovered to be above the 100.00 mark. For the week we saw rates worsen an average of .250%, but that can vary from lender to lender.
This Week’s Mortgage Rate Forecast
Mortgage Rates Forecast: IMPROVING, but for how long?
This week we are seeing the bounce that occurs after a continuous sell off in MBS like we saw since November 27th. Improvements from Friday morning interest rates should already be an average of .125% interest rate improvement, or some lenders only improving rebate pricing (the cost to obtain a rate or the credit your lender gives you towards your closing costs based on the rate selected). The technical and fundamental indicators however show that we will see this rally to be short lived, and that the longer term trend is for higher interest rates.
BOTTOM LINE: It is very important this week to stay in contact with me to watch for the end of the current MBS rally. We will see rates and/or rebate pricing improve for as long as we see the MBS rally, but we should be ready to lock in with any sign that the rally has stalled. Be prepared for volatility later this week.
