Improving US employment exceeds expectations, and increased optimism about Europe were unfavorable contributors on mortgage rates this week. The Fed’s purchases of mortgage-backed securities by the use of QE3 helped counterbalance the losses, so after several weeks of declines, mortgage rates ended the week slightly higher.

The Employment report on Friday, October 5^th, 2012, was big news this week.  Against the forecast of 120K, the economy added 114K jobs in September, yet the data from prior months was revised higher by 86K. The Unemployment Rate unexpectedly dropped to 7.8%, the lowest level since January 2009, from 8.1% last month. Average Hourly Earnings, an indicator of wage growth, increased moderately from August. Any way you look at it, the September data exceeded expectations. This increases future inflationary pressures, which is negative for mortgage rates.

The results for the change in the number of jobs and for the Unemployment Rate are derived from differing data pools, and sometimes the two sources display wide discrepancies in a particular month. The Unemployment Rate is based on a survey of a small sample of households, and it can be extremely volatile, while the Payrolls data is based on information collected from businesses and tends to be more precise. This month, the household survey showed a gain of 783K jobs, which was the highest level since 1983, and far above the increase seen in the Payrolls data. Over longer periods, the two sources generally show similar results, but not necessarily in the short-term.

Paul BayarenaEmployment Exceeds ExpectationsTexas Mortgage Lender

Mortgage rates drop after several weeks of slowly rising, though they are still off slightly from their lowest point. The current rate trend from this point seems neutral, to a possible slight increase tomorrow. Take a look at current mortgage rates below.

Rates are as of Aug 23th, 2012 at 2:PM CST.
Mortgage rates drop – take a look at current Texas mortgage rates.

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Mortgage Rates Rise – While mortgage rates have certainly edged higher since the late days of July, there are at least two major reasons to believe they are unlikely to move significantly higher from current levels, a least in the near-term.

(1) The European debt crisis is far from resolved and expectations the European Central Bank will intervene in a major way at their upcoming September 6^th meeting is likely to prove little more than an exercise in wishful thinking. If this assessment proves accurate, global credit market investors will likely register their sharp disappointment by driving huge amounts of capital back into U.S. dollar denominated assets like Treasury debt obligations and agency eligible mortgage-backed securities, and this is good news for the prospects of steady to perhaps fractionally lower mortgage interest rates onMain Street,USA.

(2) While some economic indicators have shown marginal improvement, others continue to indicate the economy is far, far away from achieving “escape velocity” from the gravitational pull of the Great Recession. It is possible that the lack of additional cash injections into the economy from the Fed together with the stalemate in Washington over taxes and spending is poised to take a substantial toll on the stock markets. My models are flashing an increasing number of signals suggesting the Dow is very vulnerable to a profit-taking sell-off this week. Without an obvious source of strength current valuations will be increasingly hard to justify, and that is a condition almost sure to start building a “take-the-money-and-run” thought process in the mind of previously big and bold stock investors.

Paul BayarenaMortgage Rates Rise but Unlikely to Move HigherTexas Mortgage Lender

The Federal Open Market Committee and the European Central Bank both meet this week amid global investor expectations that both groups of policymakers will take action to stimulate economic growth and, in the case of the ECB, tackle the spreading euro zone debt crisis.

The Fed’s monetary policy decision will come one day before the European Central Bank make public their plans to stimulate growth and avert a sovereign debt crisis in the euro-zone.

Of the two, Thursday’s ECB meeting probably packs the most “punch” with respect to its potential impact on the current trend trajectory of mortgage interest rates here at home. Fed Chairman Bernanke and his fellow committee members are not expected to take any meaningful policy action this time around – waiting at least until their September meeting before considering launching another round of economic stimulus.

Last week Thursday European Central Bank President Mario Draghi publically pledged to do whatever it takes within the ECB’s mandate to preserve the euro. He went on to say, “And believe me, it will be enough.”

Intentionally or not, Mr. Draghi has raised expectations for bold, aggressive action from the European Central Bank sooner rather than later. Global investors will be unforgiving if the ECB chief does not add anything of substance on Thursday to his dramatic promise made the previous week. Against such a backdrop stock prices will likely fall as domestic and global investors alike intensify their purchases of safe-haven assets like Treasury debt obligations and agency eligible mortgage-backed securities – a condition, should it develop, that will obviously be very supportive for the prospects of steady to perhaps fractionally lower mortgage interest rates on Main Street, USA.

If Draghi comes through, his plan with probably include substantial cuts to short-term interest rates combined with large bond purchases by the European Central Bank – in essence their version of the Fed’s quantitative easing program. The initial kneejerk reaction may continue to support steady to perhaps fractionally lower mortgage interest rates from your investors — but it probably won’t take long for increasingly large amounts of European capital currently “parked” in low yielding U.S. dollar denominated assets to begin a migration back into higher yielding asset classes elsewhere on the globe. When (noticed I didn’t say if) this process begins in earnest, the lowest U.S. mortgage interest rates in modern recorded history will have been set and the slow but methodical march to higher mortgage interest rates will have begun.

Check out our Texas Mortgage Rates: as of July 30th, 2012 at 11:51 AM CST.

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Fed Chairman Bernanke appeared before the Senate Banking Committee earlier this morning to testify regarding monetary policy issues. He told lawmakers the nation’s economic recovery is being held back by tighter financial conditions due to Europe’s debt crisis and uncertainty surroundingU.S.fiscal policy. Bernanke repeated his warning about the importance of the immediate need for congressional action related to developing a credible long-term plan to reduce U.S. government debt levels while avoiding sharp spending cuts and tax hikes in the near future. It was as though he was reading exactly from the script mortgage investors had previously written for him — which rendered the whole thing a non-event as far as its influence on the current trend trajectory of mortgage interest rates.

The day’s other economic news was equally uninspiring in terms of its impact on the direction of mortgage interest rates. Consumer prices were flat in June as the cost of gasoline dropped – exactly in-line with expectations. Stripping out the more volatile food and energy costs, the so called “core rate” of inflation at the consumer level increased a benign 0.2% – its fourth consecutive monthly gain at that rate.

In a separate report, the Fed said industrial production grew 0.4% in June while utility companies, factories and mines saw their capacity utilization rates edged up to 78.9% from 78.7%. The production number was stronger than the majority of investors had anticipated – but the utilization rate was notably lower than forecasts called for – so the whole thing was essentially shrugged off.

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Paul BayarenaFed Chairman Bernanke Appears Before the Senate Banking CommitteeTexas Mortgage Lender

Mortgage Rates Hit New All Time Low – The Treasury Department is scheduled wrap-up this week’s three-part auction series this afternoon with the sale of $13 billion of 30-year bond. The auction will conclude at 1:00 p.m. ET. There is a slim chance today’s sale will produce the lowest yield on the 30-year bond in its recorded modern history. The yield on the 30-year bond is hovering near 2.579% and is within shouting distance of its record low of 2.510% set in June.

The current demand for dollar denominated assets like Treasury debt obligations and agency eligible mortgage-backed securities continues to largely outstrip supply – and that is a condition very supportive of the prospects of steady to perhaps fractionally lower mortgage interest rates.

Mortgage Rates Hit New All-Time Low: According to Freddie Mac, the 30-year fixed-rate mortgages set a new all-time low during the week ending July 12^th and the 15-year fixed rate mortgage also hit a new low during the same time period.

It seems nothing can sway the steady march to fractionally lower mortgage rates. Mortgage investors were quick to shrug off this morning’s news from the Labor Department indicating the number of Americans filing first-time claims for government jobless benefits fell by a surprising 26,000 to a seasonally adjusted 350,000 – its lowest mark since March 2008. A Labor Department official was quick to note that part of the drop might be due to some auto manufacturers breaking with tradition and keeping their plants open during the first week of July to meet demand. Normally most, if not all, auto plants close during the first two to three weeks of July to retool for the new models. That was all the majority of mortgage investors needed to hear in order to justify discounting completely this otherwise mortgage interest rate unfriendly report.

Paul BayarenaMortgage Rates Hit New All Time LowTexas Mortgage Lender

Mortgage Blog News – Looking ahead to the remainder of this holiday shortened week – still to come are Thursday’s weekly jobless claims number and June ISM Service Sector Index. Both of these reports will be sharply overshadowed by the release of the June Nonfarm Payroll data on Friday morning. Current mortgage rates almost fully reflect mortgage investors’ expectation that the headline June Nonfarm Payroll figure will show the economy created something in the neighborhood of an anemic 90,000 new jobs last month.

The national jobless rate is expected to remain unchanged at 8.2%. Only in the highly unlikely event June Nonfarm Payrolls were to exceed 125,000 and/or the national jobless rate posts a reading of 8.0% or less will mortgage investor’s likely respond by pushing interest rates notably higher.

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Mortgage News July 2012 – Texas Mortgage Lender – Texas Mortgage - The Institute of Supply Management touched off a round of impressive fireworks in the mortgage market this morning when they reported their manufacturing index unexpectedly plunged to a reading of 49.7% in June – the lowest mark in nearly three-years. The vast majority of economists had projected the index would post a reading of 52.0% or so – only slightly softer than May’s 53.5%.

This morning’s ISM data meshed with similar survey’s released today in Europe, China and Japan showing they too are experiencing their own sharp declines in manufacturing activity.

The implication here is for very soft domestic and global economic growth in the second-half of the year – an outlook that re-enforces the near-term prospects for steady to perhaps fractionally lower mortgage interest rates from your investors.

Looking ahead to the balance of this holiday shortened week – still to come are Tuesday’s May Factory Orders figures, Thursday’s weekly jobless claims number and June ISM Service Sector Index. All three of these reports will be sharply overshadowed by the release of the June Non-farm Payroll data on Friday morning. Current rate almost fully reflect mortgage investors’ expectation that the headline June Non-farm Payroll figure will post a puny 90,000 net new job gain number. The national jobless rate is expected to remain unchanged at 8.2%. Only in the highly unlikely event June Non-farm Payrolls were to exceed 125,000 and/or the national jobless rate posted a reading of 8.0% or less will mortgage investors’ likely respond by pushing interest rates notably higher.

By Larry Baer

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Paul BayarenaFed Extends TwistTexas Mortgage Lender

Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 370,000 during the week ended May 19th according to Labor Department figures released earlier this morning.  Claims have barely budged in the past four weeks indicating a marginal improvement in the pace of job creation after April’s disappointing 115,000 gain in the broader nonfarm payroll figure.

In a separate report the Commerce Department said durable goods orders (items manufactured to last three years or more) rose 0.2% in April after dropping 3.7% in March.  While the headline figure for the April Durable Goods Orders was stronger than expected – the details of the report suggest the manufacturing sector, other than autos, will probably be lethargic for much of the summer.  Excluding transportation, orders fell 0.6%.  Business spending plans fell 1.9% after dropping 2.2% the prior month.  It looks more and more like business are hesitating to invest in face of the uncertainties in the U.S. and global economy.

Paul BayarenaInitial Claims State Unemployment Benefits May 2012Texas Mortgage Lender