Housing Recovery Shows Up In Job Gains
Believe it or not, interest rates do not drive housing demand. Jobs do. We have had some of the hottest housing markets on record when Unemployment Rates were low but interest rates where high. Simply speaking – if you feel more secure about your job, you are more likely to purchase a home.
Friday’s Unemployment Rate dropped from 7.6% to 7.5% but more importantly, the economy added 165,000 non-farm jobs.
Stronger housing means more jobs, not just construction jobs, all jobs. When consumers feel more confident about the value of their homes, they spend more money. Their homes, after all, are likely their single largest investment.
They may not take the money out of their homes, but they just feel more financially comfortable, and that comfort sends them out spending. They also spend more on home improvement.
Residential construction jobs increased by just over 6,000 in April from the previous month, according to the Bureau of Labor Statistics, and residential specialty trade contracting jobs (plumbers, electricians, roofers, etc.) grew by over 7,000.
Retailers are also seeing the effects of housing growth. Homeowners spend an average $7,400 furnishing a newly built home, according to the National Association of Home Builders.
“Spending at furniture and appliance stores is finally coming back, which has meant more hires there since the start of the year,” added Swonk.
Home prices were up just over 10 percent nationally in February, according to CoreLogic, which continues to bring thousands of homeowners out from underwater on their mortgages. That has allowed more borrowers to refinance to lower monthly payments, which in turn gives them more spending money. It also gives them more confidence that they will be able to afford more in the coming year.
“Consumers’ views regarding the housing market have been increasingly more positive,” noted Fannie Mae’s chief economist Doug Duncan. “Our April National Housing Survey, to be released next Tuesday, is expected to show that the housing market is gradually approaching its sweet spot, as the share of consumers who believe that it is a good time to buy remains high while the share of those who think it is a good time to sell continues its upward trend witnessed over the past year.”
What Happened to Rates Last Week:
Mortgage backed securities (MBS) lost -55 basis points from last Friday to the prior Friday which caused 30 year fixed mortgage rates to move upward. We had our highest mortgage rates on Friday and our lowest rates on Wednesday morning.
We had a very volatile week for MBS with a -81BPS downward swing in pricing (worse rates for you) from Wednesday’ highs to Friday’s lows. This was primarily due to jobs related data.
The economic data was very mixed for the week. Chicago PMI (a key measure of manufacturing) showed contraction and was much weaker than market expectations. But the ISM Manufacturing report showed growth and was a little stronger than expectations. Personal Incomes were down but Personal Spending was up. Consumer Confidence was much stronger than expected too.
The Federal Reserve Open Market Committee (FOMC…aka “The Fed) left their key interest rate alone while the European Central Bank lowered their rate by a 1/4 point. The FOMC also stated that they would evaluate and adjust as necessary the size of their massive monthly Treasury and MBS bond purchases.
The two biggest moves of the week came off of jobs data. First, MBS shot up (better rates for you) on the much weaker than expected ADP Private Payroll report as traders tried to use that information to bet that Friday’s Unemployment data would be worse than expected. But Friday arrived…and traders had bet wrong.
The Unemployment Rate dropped from 7.6% to 7.5% but that’s not what traders look at. They look at the Non-Farm Payroll data which was much better than market forecasts. Plus, the prior period was revised upward significantly. This positive economic news caused MBS and bonds to sell off very quickly which drove up your mortgage rates.
|Date||ET||Economic Release||Actual||Market Expects||Prior|
|7-May||3:00 PM||Consumer Credit||–||$16.3B||$18.1B|
|8-May||7:00 AM||MBA Mortgage Index||–||NA||1.80%|
|8-May||10:30 AM||Crude Inventories||–||NA||6.696M|
|9-May||8:30 AM||Initial Claims||–||336K||324K|
|9-May||8:30 AM||Continuing Claims||–||3019K||3019K|
|9-May||10:00 AM||Wholesale Inventories||–||0.30%||-0.30%|
|9-May||10:30 AM||Natural Gas Inventories||–||NA||43 bcf|
|10-May||2:00 PM||Treasury Budget||–||NA||+$59.1B|
I will be watching these reports closely for you and let you know if there are any big surprises:
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.