Ugly Jobs Report Helps Home Loan Rates

Last Week in Review: The Jobs Report for May was released. Was it good, bad, or ugly?

Forecast for the Week: The economic report calendar is light, but will the rally in Bonds and home loan rates continue?

View: Taking a home inventory is easier than you think...and it’s free! See important details below.

Last Week in Review

There’s good, there’s bad, and there’s ugly. And the Jobs Report for May was just plain ugly, with not one good data point within the release. Read on for details...and what they mean for home loan rates. On Friday, the Labor Department reported that 69,000 jobs were created in May, with 82,000 private sector job gains offsetting government jobs losses. This was a HUGE downside miss - basically half of what was expected. Adding to the pain were downward revisions to the previous two months, which erased another 49,000 jobs from what was previously reported. And if that wasn't enough, the unemployment rate ticked up to 8.2%, when expectations were for it to hold steady. The Labor Force Participation Rate (LFPR) actually improved by .2% to 63.8, but it is still hovering at a 31-year low. The LFPR is quite simple: If you are 16 years of age and not in the military and you have a job, then you are participating. If you don't have a job, you are not participating - that is how the ratio is measured. The big picture is how do we as a country reverse this significantly negative trend? We must have more people participating or working to help pay for those who are not. So what does all of this mean for home loan rates? Remember that weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve. And last week, several weak economic reports and the ongoing drama in Europe helped home loan rates reach record best levels. With inflation moderating, Stocks getting killed, and the US Dollar very strong thanks to the drama in Europe, the Fed has room for more stimulus (known as Quantitative Easing, or QE3). But it’s important to note that with home loan rates already at historic lows, another round of easing probably won’t cause home loan rates to move much lower. The bottom line is that home loan rates remain near historic lows and now continues to be a great time to purchase or refinance a home.

Forecast for the Week

This week's economic calendar is light, but there’s another potential development to monitor. Here’s what to watch this week: ISM Services will be released on Tuesday. This report shows how the service sector is holding up. Remember, individuals employed in this sector produce services rather than products.   The only other report of significance will be the weekly Initial Jobless Claims report on Thursday. This week’s data will come after last week's rise in claims, which signaled that the labor market continues its malaise. In addition to those reports, one of the big questions this week will be where investors decide to park their money. Will it shift from the safe haven of Bonds into riskier assets? With economic data getting weaker week-by-week, can the rally in Bonds continue? Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on. When you see these Bond prices moving higher, it means home loan rates are improving — and when they are moving lower, home loan rates are getting worse. To go one step further — a red “candle” means that MBS worsened during the day, while a green “candle” means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning. As you can see in the chart below, weak economic data and the drama in Europe helped Bonds and home loan rates reach record best levels. I’ll continue to monitor this situation closely. Chart: Fannie Mae 3.5% Mortgage Bond (Friday Jun 01, 2012)

The Mortgage Market Guide View...

Home Inventory Made Easy: Send This Link to Clients and Friends Here’s a great idea you can pass on to your clients, friends, and family members — whether they’ve owned a home for decades or are just settling into homeownership. Imagine the nightmare of having a home damaged or destroyed. Then, to make matters worse, imagine trying to remember all of the home’s contents for insurance and replacement purposes. Many thousands of Americans find themselves in that situation every year. Now’s the time to make sure that doesn’t happen! Here’s how… Homeowners can create a home inventory list with ease thanks to FREE access to the Insurance Information Institute’s "Know Your Stuff" software, which is available at www.knowyourstuff.org. The software is user friendly…available as an app…and even provides free secure storage online so users can be sure their inventory is accessible in the event that their home is damaged. After a quick setup, users can create a name for each room in their home — kitchen, living room, family room, master bedroom — and begin adding items. A drop down list is even available with the most common household items as well as the specific information required by insurance companies, in case a claim needs to be filed. Want to add a picture or a receipt for a large ticket item? No problem, just upload the image. Once the home inventory is completed, it’s a good idea to have the homeowner’s insurance agent review the list to make sure the home has sufficient coverage. Economic Calendar for the Week of June 04 - June 08 Date ET Economic Report For Estimate Actual Prior Impact Tue. June 05 10:00 ISM Services Index May 53.0 53.5 Moderate Wed. June 06 08:30 Productivity Q1 0.7% -0.5% Moderate Wed. June 06 02:00 Beige Book May Moderate Thu. June 07 08:30 Jobless Claims (Initial) 6/2 375K 383K Moderate

 Let me know if I can answer any questions at all for you or your clients.

Leonard Winslow
Branch Manager
New American Mortgage
Phone: (434) 760-2580
Fax: (540) 904-0025
License: MLO-4871VA/ NMLS 265272
leonard.winslow@newamerican.com


Rob Alley, Realtor/Owner of Virginia Real Estate Solutions at RE/MAX Assured Properties
434-220-7133
roballeyrealtor@gmail.com
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