Real Estate and Mortgage Market Update for Thursday 05-31-2012

Updated on May 31, 2012 9:25:49 AM EDT EST Thursday’s bond market has opened in positive territory following weaker than expected results from this morning’s economic data. The stock markets are extending yesterday’s sell-off with the Dow down 49 points and the Nasdaq down 23 points. The bond market is currently up 8/32, which with yesterday’s afternoon strength, should improve this morning’s mortgage rates by approximately .125 – .250 of a discount point over yesterday’s morning pricing.

Neither of this morning’s economic reports was considered highly important to the markets. They both carry enough significance to cause a slight move in mortgage rates, but are not thought of as important releases. The first was the revised 1st Quarter Gross Domestic Product (GDP) reading that revealed a 1.9% annual rate of growth, down from the initial estimate of 2.2% and slightly lower than forecasts of 2.0%. This means that the economy grew at a slower pace than many had thought during the first three months of the year, making the data favorable for the bond market and mortgage pricing. Today’s revision was the first of two that we see each quarter, with the final coming next month. The initial reading that is posted the first month after the quarter is considered the most important and has the biggest impact on market trading and mortgage rates. Today’s update is usually thought of as moderately important while next month’s final revision will likely have little influence on mortgage rates.

The Labor Department announced early this morning that 383,000 new claims for unemployment benefits were filed last week. This was an increase over the previous week’s revised total of 373,000, indicating a weaker employment sector. This is good news for the bond market and mortgage rates, especially since analysts were expecting to see a small decline in claims, not an increase. Unfortunately, this data is not considered highly important because it tracks only a single week’s worth of new benefit claims. However, it does help support my theory that tomorrow’s monthly Employment report is not going to paint a pretty picture on the sector.

Tomorrow is going to be a doozy for the markets and mortgage shoppers as it has three relevant economic reports scheduled, two of which are considered to be highly important. Add in the fact that the benchmark 10-year Treasury Note is setting record lows (currently at 1.60%) and the stock markets have been volatile and we have the makings of a very interesting day ahead of us. If we get weaker than expected results from the two major reports, bond yields could drop more, leading to even lower mortgage rates. On the other hand, with yields at record lows and mortgage rates near the same, unexpected strength in the data will likely lead to a spike in mortgage rates. I suspect the data will disappoint the markets tomorrow (good news for mortgage shoppers). However, just what type of impact that would have on bond trading and mortgage rates depends on far off from forecasts they were. My biggest concern is that just matching forecasts will be taken as a negative in the bond market, meaning we could see bond prices fall, pushing yields and mortgage rates higher. Therefore, proceed cautiously if still floating an interest rate.

As for the data itself, April’s Personal Income and Outlays data is the least important of the three, but is still thought of as a fairly important report. It will be posted at 8:30 AM and gives us an indication of consumer ability to spend and current spending habits. An increase in income means that consumers have more money available to spend. Since consumer spending makes up over two-thirds of our economy, this data can cause movement in the financial markets and mortgage rates. Current forecasts are showing a 0.3% increase in income and a 0.3% rise in spending. Weaker readings would be considered good news for bonds and mortgage rates.

Tomorrow’s second report is arguably the single most important report that we see each month. The Labor Department will post May’s Employment data at 8:30 AM ET also. This report gives us key employment sector readings such as the U.S. unemployment rate and the number of jobs added or lost during the month. Analysts are expecting to see the unemployment rate remain at 8.1% this month with approximately 150,000 jobs added to the economy during the month. A higher than expected unemployment rate and a much smaller number than 150,000 in new payrolls would be great news for the bond market. It would probably create another rally in bonds, leading to even lower mortgage rates. However, stronger than expected numbers, indicating employment sector strength, may lead to a bond sell-off and a spike in rates.

The Institute for Supply Management’s (ISM) manufacturing index will conclude the week’s data late tomorrow morning. This highly important index measures manufacturer sentiment. A reading above 50 means that more surveyed manufacturing executives felt that business improved during the month than those who felt it had worsened, pointing towards sector strength. Analysts are expecting to see a 54.0 reading in this month’s release, down from April’s 54.8, meaning that sentiment fell during May. A smaller reading will be good news for the bond market and mortgage shoppers while an unexpected increase could contribute to higher mortgage rates- especially if the Employment report shows stronger than forecasted numbers.

Real Estate and Mortgage Market Update for Wednesday 05-30-2012

Wednesday’s bond market has opened up sharply due to early stock selling and more concerns about foreign banking and financial issues. The stock markets are having a delayed reaction to news from Spain that raised concerns yesterday about a potentially major crisis in the near future. Stocks rallied yesterday despite the concerning news that came out over the holiday weekend. It appeared that stock traders weren’t too worried that Spain could follow the same track as Greece did, pushing the Dow up 125 points yesterday.

What a difference one day can make. The major stock indexes are posting sizable losses this morning with the Dow down 147 points and the Nasdaq down 39 points, erasing yesterday’s gains. The bond market is currently up 29/32, which should improve this morning’s mortgage rates by approximately .250 of a discount point over yesterday’s morning pricing. Limiting this morning’s improvement is weakness in yesterday’s afternoon bond trading that came as a result of stocks being able to hold onto their gains. If your lender revised their pricing higher yesterday afternoon, you may see a bit more of an improvement than the .250 that most are seeing today.

There is nothing of relevance scheduled for release today in terms of economic data or related events. This is leaving stock movement to influence bond trading and mortgagerates this morning. So far, this is a good thing for mortgage borrowers. As long as the major stock indexes don’t stage a significant rally later today, we should see mortgagerates remain near current levels or possibly even improve slightly. Also, the fact that we are seeing the expected reaction in stocks, I am shifting to a more optimistic approach towards mortgage rates, at least for the time being.

Tomorrow has two pieces of economic news being posted, both at 8:30 AM ET. The first one is the first of two revisions to the 1st quarter Gross Domestic Product (GDP). The second revision to this index comes next month but isn’t expected to carry much importance. The GDP is the sum of all goods and services produced in the U.S. and is considered to be the best measurement of economic growth. Last month’s preliminary reading revealed a 2.2% increase in the annual rate of growth. Analysts expect a downward revision to this reading with the consensus being a 2.0% rate of growth. If the revision comes in much stronger than expected, we may see the bond market react negatively and mortgage rates move higher because it would mean the economy was stronger than thought last quarter. On the other hand, a much weaker reading could lead to stock selling, another bond rally and lower mortgage rates tomorrow morning.

We also will get last week’s unemployment numbers from the Labor Department. They are expected to announce that 368,000 new claims for unemployment benefits were filed last week, down slightly from the previous week’s total of 370,000. However, I would not be surprised to see yet another upward revision to the previous week’s number, making it difficult for us to give much credence to the weekly numbers. Generally speaking, the higher the number of new claims, the better the news for mortgage rates because it would indicate employment sector weakness. If it shows a large decline in new claims, meaning the sector strengthened last week, we may see bond prices slip and mortgagerates rise slightly.

Real Estate and Mortgage Market Update for Thursday 05-29-2012

This is Employment Report week, always a big one for the markets.  ADP will report its estimate for private jobs in May on Thursday then the BLS reports the “official” report on Friday.  In the meantime Europe still dominates overall.  Spain is taking the spotlight on concerns Spanish banks are teetering on the edge and need capital infusion in some manner in order to remain solvent. It only gets worse in Europe, Greece is increasingly viewed as leaving the EU with the deciding vote in about two weeks (June 17^th).

How low can U.S. interest rates fall?  Based on comparisons of some other AAA sovereign yields the U.S. 10-Year Note is cheap, trading at 1.73% this morning compared to Germany’s 10-Year Bund at 1.346%; the spread .385 bps at 930am.  Five years and counting, the U.S. budget deficits have exceeded $1.0T with U.S. debt downgraded by rating agencies and no longer AAA.  One of the key drivers for U.S. interest rates is there are better yields here than in Germany, Australia and other better controlled countries.  The extra yield investors receive for holding Treasuries is an added benefit for investors seeking a haven from Europe’s sovereign debt turmoil.  In the U.S. there is absolutely no incentive for politicians to focus on budgets.  Neither Democrats or republicans (no matter what comes out of their mouths), have no interest in actually dealing with excess spending regardless of what you may here from any of them.

Home values in 20 U.S. cities fell in the 12 months ended March at the slowest pace in more than a year as lower borrowing costs and an improving job market gave sales a boost.  The S&P/Case-Shiller index of property values fell 2.6% from a year earlier after a 3.5% drop in February.

At 930am the DJIA opened up +83, the NASDAQ up +25; the 10-Year Note up +3/32 at 1.73% (-1 bps) and mortgage prices that were slightly better early were unchanged.

At 1000am the May Consumer Confidence Index from the Conference Board, expected at 69.4, was a lot weaker at 64.9 from revised April figures at 68.7 from 69.2.  Expectations at 77.6 from 80.4, the present situation at 45.9 from 51.2.  The rep[ort on consumers is a lot weaker than what the University of Michigan Consumer Sentiment Index reported last week.  The reaction wasn’t much as the 10-Year Note moved up 2/32 in price but the stock market ignored the report.

There probably won’t be much movement in the financial markets through the rest of the day,at least until 300pm for the stock market.  The final hour in stock trading is generally volatile.  The interest rate markets are not likely to improve a whole lot this week until the Employment Report is released on Friday or a significant decline on German 10-Year Bunds occurs.  Technically the U.S. 10-Year Note is going to need a large push to move and stay below 1.70%.  mortgage rates are likely to be unchanged through most of this four day week.

Real Estate and Mortgage Market Update for Thursday 05-24-2012

Thursday’s bond market has opened in negative territory following the release of uneventful economic data and a positive open in stocks. Yesterday’s afternoon recovery rally in stocks appears to be extending into this morning’s trading with the Dow up 31 points and the Nasdaq up 2 points. These aren’t notable gains, but when considering that the Dow nearly erased a 191 point loss to close down only 6 yesterday while the Nasdaq closed up 11 points, the fact that stocks are in the green today is a point of concern for bond traders.

The bond market is currently down 11/32, which should cause this morning’s mortgage rates to rise by approximately .250 of a discount point. Part of that increase is a result of bonds losing ground yesterday as stocks rallied late in the day. Most lenders likely waited until this morning’s rate sheet to reflect yesterday’s afternoon losses.

There were two pieces of economic data released this morning, both coming at 8:30 AM ET. The more important of the two was April’s Durable Goods Orders report that revealed a 0.2% increase in new orders for big-ticket items. This nearly pegged forecasts of a 0.3% increase, but since this data is known to be quite volatile from month-to-month, we can consider it a match. Worth noting though is a somewhat favorable secondary reading that excludes transportation orders. If orders for airplanes and other transportation-related items, new orders fell 0.6% compared to forecasts of a 1.0% increase. This means that new orders for smaller, less expensive items were weaker than many had thought. That makes the news favorable for bonds and mortgage rates, however, it really wasn’t a huge variance so its impact on today’s mortgage pricing has been fairly minimal.

The Labor Department reported that 370,000 new claims for unemployment benefits were filed last week, down slightly from the previous week’s revised total of 372,000. Yes, we did see an upward revision to the previous week’s number of initial claims. Not exactly surprising news. When we digest the data, we see a decline of 2,000 claims when analysts were expecting to see a drop of 5,000 (370k to 365k). Therefore, we should consider the data slightly favorable to bonds and mortgage rates. Unfortunately, slightly favorable results from a weekly report isn’t enough to offset other factors that are leading to this morning’s weakness in bonds.

Yesterday’s 5-year Treasury Note auction didn’t cause a great deal of movement in bonds yesterday afternoon. The selling in bonds came as a result of stock buying, not results of the sale. If today’s 7-year Note sale goes very well AND stocks remain near current levels, we could see some improvement in bond prices and possibly mortgage rates later today. Results will be posted at 1:00 PM ET, so any reaction will come during afternoon hours.

The last relevant data of the week will come from the University of Michigan, who will update their Index of Consumer Sentiment for May late tomorrow morning. This type of data is watched closely because when consumers are feeling more confident about their own financial situations, they are more likely to make a large purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, rising confidence and the higher levels of spending that usually follow, are considered negative news for bonds and mortgage rates. Tomorrow’s report is expected to show a small decline from this month’s preliminary reading of 77.8. A reading above 77.5 would be considered negative for bonds and mortgage pricing.

Real Estate and Mortgage Market Update for Wednesday 05-23-2012

Wednesday’s bond market has opened in positive territory due to early stock selling, erasing yesterday’s losses. The stock markets are reacting negatively to unfavorable earnings news and renewed concerns about Greece and its potential impact on the global economy. This has pushed the Dow down 144 points and the Nasdaq down 24 points. The bond market is currently up 15/32, which should improve this morning’s mortgage ratesby approximately .125 – .250 of a discount point.

The Commerce Department reported late this morning that sales of newly constructed homes rose 3.3% last month, in line with analysts’ forecasts. Even though this is a sizableincrease, sales were well below the level that many feel is needed to keep the economy growing at an acceptable pace. Since the data showed no significant surprises and is not considered to be a highly influential report in the first place, it has had little impact on this morning’s bond trading and mortgage pricing.

We also have to watch the 5-year Treasury Note sale today and 7-year Note sale tomorrow that can also influence bond trading and mortgage pricing. A strong demand from investors could help fuel buying in the broader bond market, leading to improvements in mortgage rates later today and possibly tomorrow afternoon. However, a weak demand in the auctions could have the opposite effect on bonds and mortgagerates. Results of the sales will be posted at 1:00 PM ET each day, so any reaction will come during afternoon hours.

Tomorrow has the week’s most important report scheduled along with the Labor Department’s weekly unemployment update. April’s Durable Goods Orders is the more important one as it gives us an indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket products. These are items made with an expected life span of three or more years. It is currently expected to show an increase in new orders of approximately 0.3%, indicating the manufacturing sector remained fairly flat last month. That would be relatively good news for the bond market and mortgage rates, but this data is known to be quite volatile from month to month. Therefore, a small variance from forecasts would likely have little impact on tomorrow’s mortgage rates.

The Labor Department is expected to announce that 365,000 new claims for unemployment benefits were filed last week, down approximately 5,000 from the previous week. We have seen a regular pattern of upward revisions to the previous week’s number each of the past several weeks, so it would not be surprising to see last week’s estimate of 370,000 revised upward. Generally speaking, the bond market prefers to see increases in new claims as it indicates employment sector weakness. However, since this report really tracks only a single week’s worth of new claims, its impact on mortgagerates is usually minimal unless it shows a significant surprise. I am expecting the Durable Goods Orders report to have a bigger influence on bond trading and mortgage ratestomorrow than the weekly unemployment numbers.

Real Estate and Mortgage Market Update for Tuesday 05-22-2012

Tuesday’s bond market has opened in negative territory despite a lackluster open in stocks and slightly weaker than expected economic news. The Dow is currently up 23 points while the Nasdaq has gained 10 points. The bond market us currently down 15/32, which will likely push this morning’s mortgage rates higher by approximately .250 of a discountpoint over yesterday’s morning pricing.

Today’s only relevant economic data came from the National Association of realtors, who reported that home resales rose 3.4% last month, falling just a bit short of expectations. Still, it was a sizable increase, indicating strength in the housing sector. That makes the data negative for bonds and mortgage rates because a strengthening housing sector makes a broader economic recovery more likely.

Tomorrow has another housing sector report scheduled with the release of April’s New Home Sales data at 10:00 AM ET. It is the sister report of today’s Existing Home Sales, but tracks a much smaller portion of housing sales than today’s report does. Actually, it is the least important release of the week and probably will not have much of an impact onmortgage pricing unless it shows a significant surprise. It is expected to show gains in sales from March’s level, meaning the new home portion of the housing sector also strengthened last month.

We also have the 5-year Treasury Note sale tomorrow that can influence bond trading and mortgage pricing. A strong demand from investors could help fuel buying in the broader bond market, leading to improvements in mortgage rates tomorrow. However, a weak demand could have the opposite effect on bonds and mortgage rates. Results of the sale will be posted at 1:00 PM ET, tomorrow, so any reaction will come during afternoon hours.

Real Estate and Mortgage Market Update for Monday 05-21-2012

The bond and mortgage markets started slightly weaker this morning but have managed to hold close to unchanged with stock indexes trading a little better.  There are no economic reports today.  This week Treasury will auction $99B of notes beginning tomorrow through Thursday.  With rates now at historic lows the demand will be the measurement of how well the auctions go off.  Economic reports this week have Aprilexisting and new home sales, durable goods orders and of course weekly jobless claims.

In Europe the EU summit starts Wednesday.  German and French finance chiefs are scheduled to meet in Berlin before the summit meeting.  Concern Greece will exit the euro erased about $4 trillion from global stock markets this month.  There is a strong desire for keeping Greece in the 17 county currency, although Germany still holds court with its insistence for severe austerity.  Greece will have another election in June, in essence to determine whether voters want to stay or go.  While the election isn’t framed as a do or die thing, that is what it will be.  Hedge funds reduced wagers on a rally in commodities to the lowest this year on mounting speculation that Greece will leave the euro, slowing global growth and curbing demand for everything from copper to soybeans.  U.S. stock indexes trading higher on comments from China it would support the economy and German and French officials prepared to meet before a summit.  There is an increasing belief that Greece will leave the euro currency, that belief will keep U.S. interest rates from increasing much.  According to one report 90% of respondents now believe Greece will go.  On Saturday at Camp David G-8 leaders urged Greece to stay within the euro area as polls in the country showed a close race between parties supporting and opposing the European Union’s bailout deal.

Speculation has risen that the Federal Reserve may need to add to the $12.8 trillion already spent to avert a second recession in three years after reports showed jobs are growing more slowly than forecast and Bernanke said April 25th that the Fed “remains prepared to do more as needed.”  For first time since it announced Operation Twist in September, the Fed’s preferred gauge of measuring traders’ inflation expectations is poised to fall for a second straight month.  Six weeks from now the Fed’s Operation Twist is set to end, with inflation not a factor and the weakening global and U.S. economy there is likely to be increasing speculation the Fed will either extend it or have another plan to keep interest rates from increasing.

At 930am the DJIA opened up +25, NASDAQ up +5.  Facebook trade started lower than its IPO price last Friday down -$3.00 from the IPO price of $38.00.  The 10-Year Note down -3/32; mortgage prices traded about unchanged from Friday.

Real Estate and Mortgage Market Update for Friday 05-18-2012

Friday’s bond market has opened in negative territory with no relevant economic data being posted this morning, erasing a good part of yesterday’s afternoon strength. The stock markets are relatively flat with the Dow up 7 points and the Nasdaq up 1 point. The bond market is currently down 8/32, but due to strength late yesterday we should still see an improvement of approximately .125 of a discount point in this morning’s mortgagepricing.

Bond prices moved higher during afternoon trading yesterday, causing some lenders to improve their rates intra-day. If your lender did post revised pricing yesterday afternoon, you may see little change or a slight increase in this morning’s rates. However, if yourlender waited until this morning to reflect that afternoon improvement, you should see slightly lower rates compared to yesterday morning.

There is nothing of relevance scheduled for release today, so I would not be surprised to see a fairly calm day in bond trading, assuming the stock markets don’t rally or go into selling mode. If the major stock indexes move noticeably higher than current levels, we may see bond prices worsen, likely leading to upward revisions to mortgage rates later today. On the other hand, if the Dow and Nasdaq fall well into negative ground, we could see the bond market recover this morning’s early losses and mortgage rates move slightly lower.

Next week doesn’t bring us any major economic reports or other events that are likely to be highly influential to bond trading and mortgage pricing. There is a handful of relevant economic reports scheduled in addition to two semi-important Treasury auctions, but none of them are considered to be highly important to the markets. None of the reports are scheduled for release Monday, so weekend news and Monday’s early stock trading will likely drive bond trading and mortgage rates that day. Look for details on next week’s events in Sunday’s weekly preview.

Real Estate and Mortgage Market Update for Thursday 05-17-2012

Thursday’s bond market has opened flat despite a weaker than expected economic report. The stock markets opened in negative territory but have since improved off their earlier lows. The Dow is currently down 9 points while the Nasdaq has lost only 7 points. The bond market is currently unchanged from yesterday’s close, but we will still may see a slight improvement in this morning’s mortgage pricing due to strength late yesterday.

Yesterday’s afternoon release of the minutes from the last FOMC meeting didn’t reveal any major surprises but did indicate that there is concern about the economy and fiscal issues late next year. They hinted that the Fed may be prepared to do something to help boost economic growth if the economy does not pick up momentum on its own. The leading ideas are a QE3 program or extending the current campaign of swapping short-term holdings to long-term debt, known as Operation Twist. The renewed optimism about more stimulus coming from the Fed helped boost bond prices late yesterday and caused some lenders to slightly improve mortgage rates.

There were two pieces of economic data posted this morning. The first came from the Labor Department, who announced that 370,000 new claims for unemployment benefits were filed last week. This matched the previous week’s revised total, meaning there was no change from two weeks ago to last week. Analysts were expecting to see a slightdecline in new claims, so we could technically consider this data a bit favorable for bonds and mortgage rates. But, the truth is that it doesn’t carry enough significance to influence trading or rates with such a minor variance. Therefore, we are considering the data to be neutral and a non-factor in today’s pricing.

The second of the morning and the final report of the week was April’s Leading Economic Indicators (LEI). The Conference Board said late this morning that the LEI fell 0.1% last month when it was expected to rise 0.2%. This means the index is predicting flat economic growth over the next several months. That makes the results good news formortgage rates, but unfortunately this data is also considered moderately important so its impact on today’s bond trading and mortgage pricing has been minimal.

There is nothing of relevance scheduled for release tomorrow, so look for the stock markets and news from Greece to be the biggest factors in changes to mortgage pricing tomorrow. Stock gains will likely translate into bond weakness and higher mortgagerates, while stock losses should lead to an improvement to rates. Any progress in the Greece political stalemate will also influence the markets, particularly if something gives that indicates the current bailout agreement in place will be honored. That would probably fuel a stock rally and bond selling, meaning mortgage rates could move higher.

Weekly Economic Summary - Last week in review (May 7 – 11, 2012)

Last week, the National Association of realtorS^® said that of the 146 Metro cities surveyed, home prices rose in 74 of them in Q1 2012. This is up from 29 cities that saw an increasein home prices in Q4 2011. In addition, the National Association of realtorS^® stated that inventories for existing homes fell 22% since this time last year and are down 41% since the peak in mid-2007. While the housing market has a long way to go, this report was a nice step in the right direction.

There was also news from the National Federation of Independent Business, which said that its small business optimism index gained 2% in April as the survey revealed that companies have increased plans for hiring and investing in the future. While companies added new employees at a slower pace in April than in March; the index rose to 94.5, the highest level since February of 2011. Overall the report showed that our economy is improving but is still fragile. The state of our economy is part of the reason for the improvement in bonds (and home loan rates, which are tied to mortgage bonds) of late.

Another big reason that bonds and home loan rates have been improving is the uncertainty out of Europe. France elected a new president, and this change of the guard represents the ninth EuroZone leader swap since the financial crisis began. Greece is also back in the news and their citizens are not taking to the austerity measures either. The New Democracy government, a pro-bailout party, is having trouble gathering the support to rule the government. This has sparked some safe haven trading into our bonds, as investors see U.S. bonds as a safe place for their money.

Weekly Economic Forecast Third Week of May 2012

Interest rates are likely to continue lower on increasing fears Europe is facing defaults from Greece and increasing likelihood Greece will depart the EU.  If Greece were to exit the EU it may set up a domino effect with Ireland, Portugal and Spain to follow.  Europe’s attempt at severe austerity efforts to bring countries” fiscal spending under control has failed.  In Germany over the weekend Angela Merkel’s party suffered another defeat in local elections, last weekend another local election went against her.  Germany is the rock in Europe and voters are showing their resistance to any additional help from the country.  In Greece over the weekend the attempt to form a coalition government has failed leading now to another general election.  Most Greeks are rebelling against the austerity pledge Greek officials agreed on a few months ago.

This week after a week with little domestic economic data, there are a number of key data points on Tuesday, Wednesday and Thursday. April reports for the most part; Retail Sales, Consumer Price Index (CPI), Housing Starts and Permits, Industrial Production and Factory Use, the Philadelphia Federal Reserve May Index.  The minutes from the 4/25 Federal Reserve Open Market Committee (FOMC) meeting will get a lot of focus, looking for clues about another possible QE.  We expect the Federal Reserve will not initiate another QE but there are many analysts and economists thinking the Federal Reserve will ease one more time.  If the Federal Reserve were to ease again it would likely have to happen at the next FOMC meeting in June, after that the Federal Reserve will likely refrain with elections coming in November.

Weekly Economic Summary First Week of May 2012

The Jobs report showed that 115,000 jobs were created in April, with 130,000 private sector jobs offsetting government job losses. This number was a disappointment and below expectations. The only silver lining in the report were upward revisions to the previous month’s readings which added 53,000 more jobs than what was previously reported.

The unemployment rate dropped to 8.1% — the lowest since January 2009. However, thedecline was mainly due to the labor force shrinking by 300,000, rather than by robust job growth. As expected, we are starting to hear more and more about the Labor Force Participation Rate (LFPR). The LFPR dropped to 63.6, the lowest ratio since December 1981. Why is this important? The LFPR gives us a clear read of who is working and who is not.  And if someone is not participating, then they are probably receiving some sort of social security or unemployment insurance. The bottom line is that it is tough to pay down debt when there are not enough people participating in the labor force.

Overall the Jobs report was underwhelming and, unfortunately, further accommodative monetary policy or more bond buying (known as Quantitative Easing or QE3) will have a very limited effect on job growth. And the debt drama in Europe continues to escalate, as both Italy and Germany reported higher than expected unemployment rates, while Spain has slipped into its second recession since the financial crisis.

Real Estate and Mortgage Market Update for Monday 05-07-2012

Treasuries and mortgages are fractionally better this morning but not much. Friday the 10-Year Note pushed through 1.90%, a key technical resistance level. Stock indexes in pre-market opening were trading weaker supporting the bond market. In Europe over the weekend Greece and France voted out the leadership that drove the massive austerity plans that have crippled Europe. France elected Francois Hollande and ousted Sarkozy; Sarkozy and Germany’s Angela Merkel were the architects of the severe cuts in spending in the debt riddled countries of Greece, Portugal, Ireland, Italy and Spain that has routed what was left of the economies and driven unemployment to depressionary levels. The results of the elections in the two countries came after a tumultuous few weeks that saw the Dutch government fall as Britain’s conservative led coalition took a whipping in local elections. Most analysts believe voters in Europe are in favor of balanced budgets and good fiscal governance but the spending cuts are too severe and too quick. Germany and France, especially Germany, have forced unemployment higher and dealt the euro economy into a very deep recession.

Here in the U.S. the stock market had a bad week last week and we expect additional selling this weekas investors are increasingly concerned valuations in many of the “hot” issues have become too expensive. Europe’s recession is slowing China and investors see recent U.S. data as evidence the U.S. will slow. That the U.S. will slow growth flies in the face of the most recent Federal Reserve forecasts. Last week the Federal Reserve raised its outlook for GDP growth this year and next compared to their outlook in January. Uncertainty is the word of the moment.

At 930am the DJIA opened down -46, NASDAQ down -13, S&P down -4; 10-Year Note up +2/32 at 1.87% while mortgage prices up 2/32 (.06 bps).

This week Treasury will auction $72B of notes and bonds; $32B of 3-Year Notes tomorrow, $24B of 10-Year Notes on Wednesday and $16B of 30-Year Bonds on Thursday. There isn’t much in the way of key economic releases this week. This afternoon at 300pm March Consumer Credit; it is one our favorite reports each month although there isn’t a lot reaction when it hits. Credit is expected to have increased $11.0B after +$8.7B inFebruary; our focus is on revolving credit (credit card usage) not so much on the headline. Consumer Credit has been surging the last six months driven by non-revolving credit, credit in large part that’s used to fund vehicle purchases. Revolving credit, which also turned higher late last year, has however been lagging and contracted slightly for a second month in a row.

Weekly Economic Summary – Fourth Week of April 2012

After last week’s regularly scheduled meeting of the Federal Open Market Committee (FOMC), Fed Chairman Ben Bernanke acknowledged that conditions in our economy are improving modestly, but he noted that the housing market remains depressed. One example of this is new home sales, which fell 7.1% in March to 328,000 units on an annual rate.

Bernanke also noted that inflation is higher in the short-run due to higher energy costs, but that the Fed expects prices to tone down over the longer-term. Remember, inflation hurts the value of fixed investments like bonds (including mortgage bonds, to which homeloan rates are tied) so inflation staying in check is crucial when it comes to home loanrates remaining near record best levels.

One important subject the Fed didn’t mention in their Policy Statement was another round of bond buying to stimulate our economy (known as Quantitative Easing or QE3). This wasn’t much of a surprise because after several moves to prop up the economy the Fed must see where upcoming economic reports go before venturing to underwrite the economy further. If the housing market remains depressed and the economy doesn’t pick up steam, QE3 could be a very real possibility.

There was a bit of a sluggish read on our economy last Friday, after the Fed’s mid-week meeting. The advanced (first of three readings) of Gross Domestic Product (GDP) for the 1st quarter of 2012 came in at 2.2%, well below expectations. This was also well below the 3% final 4th quarter 2011 GDP reading. Within the report it showed that the personal consumption expenditure inflation reading rose at the fastest pace since the 2nd quarter of 2011. This is definitely something the Fed is watching closely.

As 2012 continues to unfold, inflation, the housing market, our sluggish economy, and our ever-growing debt are important issues that the Fed and government need to address. Seeing the debt crisis in Europe escalate puts a sense of urgency on our government to reign in our annual budget deficit and overall debt. This mix of factors will continue to impact the direction in which bonds and home loan rates move in the weeks ahead.

State-by-state Unemployment Chart

 

 

 

 

 

 

As you can see in the chart below, unemployment continues to be a concern around the nation. Watch for the Labor Department’s Jobs Report on Friday, to see how bonds and home loan rates are impacted.