Job Gains Surge

Aug 05 2016

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Over the past week, two highly anticipated economic events caused significant, but offsetting, reactions for mortgage rates. The negative impact of Friday's strong Employment report was greater than the positive effect of Thursday's Bank of England announcement, and mortgage rates ended the week a little higher. 

Mortgage rates increased following the release of Friday's upside surprise in the important monthly Employment report. Against a consensus forecast of 180K, the economy added 255K jobs in July. In addition, upward revisions added 18K jobs to the results for prior months. The unemployment rate remained at 4.9%, above the consensus of 4.8%, as more people entered the workforce. 

Average hourly earnings, an indicator of wage growth, exceeded expectations, and they were 2.6% higher than a year ago. Stronger job and wage gains are negative for mortgage rates, since they increase the outlook for future inflation.

On Thursday, the Bank of England (BOE) announced a 25 basis point rate cut and a new bond purchase program to stimulate economic activity. Investors had expected the rate cut, but the additional bond purchases were a surprise to some. In the statement, the BOE said that the outlook for economic growth had "weakened materially" following the Brexit vote on June 23. The added demand for bonds from the BOE helped push global bond prices higher and yields lower, including U.S. mortgage rates. 

Looking ahead, second quarter Productivity will be released on Tuesday. The JOLTS report, which measures job openings and labor turnover rates, will come out on Wednesday. The most significant report of the week, Retail Sales, will be released on Friday. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. 

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)

Topics: The Money Source, mortgage news, mortgage rates, retail sales, bond purchase program, employement report

ECB Holds Steady

Jul 22 2016

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Thursday's European Central Bank (ECB) meeting was viewed as negative for U.S. mortgage rates. The economic data released this week had little impact. As a result, mortgage rates ended the week a little higher.

Some investors were disappointed by Thursday's decision by the ECB to make no change in monetary policy. To help ease the impact of the June 23 Brexit vote, some wanted to see the ECB provide additional stimulus. Looser monetary policy from global central banks with bond purchase programs has been viewed as positive for mortgage rates in recent years. The reaction on Thursday morning to the lack of additional stimulus was an increase in mortgage rates. Comments from ECB officials left the door open for looser policy at the next meeting in September, however, and the impact of this meeting was small.

June was another good month for the housing market. Sales of existing homes rose in June for the fourth month in a row to an annualized rate of 5.6 million units, which was the best level since February 2007. This was achieved despite a very low supply of homes available for sale. There was just a 4.6-month supply in June. A healthy balance between buyers and sellers is considered to be a little over a 6.0-month supply.

Home builders are certainly aware of the lack of supply as they have ramped up construction. The Commerce Department reported that there were more houses under construction at the end of June than at any time in the last eight years.

Looking ahead, the next U.S. Fed meeting will take place on July 27. No change in rates is expected, but the statement from the Fed could have a significant impact on mortgage rates. Before the Fed meeting, the new home sales data will come out on Tuesday. The pending homes sales data and the report on durable orders will be released on Wednesday. The first reading for second quarter Gross Domestic Product (GDP), the broadest measure of economic growth, will come out on Friday. 

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)

Topics: The Money Source, economic data, US Mortgage Rates, bond purchase program

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