Interest Rate Update – June 5 June 6, 2009

CONVENTIONAL
30 Yr   5.375%
15 Yr   5.0

 

ARMS
3 Yr   3.625%
5 Yr   4.125
7 Yr   4.5

 

JUMBO
30 Yr   6.25%
15 Yr   5.35
5 Yr ARM  3.95%!!
7 Yr ARM  5.15

 

FHA/VA
30 Yr  5.375%
15 Yr  5.0
3 Yr ARM  3.625%
5 Yr ARM  3.875

 

Market Comments -

 
Wow…the Jobs Report showed 345,000 jobs lost in May, far better than expectations for 520,000 jobs lost.  And adding to the positive tone were revisions to the two prior months, showing 82,000 fewer jobs lost than previously reported.  So all in all, about 260,000 fewer jobs lost than had been forecast.  But oddly enough, the better than expected jobs number did not jive with the Unemployment Rate, which had been forecast to come in at 9.2% and actually came in at 9.4%, up from 8.9% in the previous month.  And think about it, if a 9.2% Unemployment Rate were anticipated to coincide with 520,000 jobs lost…then how does a jobs number far better than expected drive the rate of unemployment much worse than expectations?  

The answer is in the fact that these numbers come from two separate surveys.  The job creations/loss number is mostly derived from the birth-death ratio, which we have often talked about with you, and explained both how unreliable this is, subject to enormous and repeated revisions.  The Unemployment Rate is a real survey of about 60,000 households that are asked about their current employment situation – and therefore a much more reliable number.  

 
Even though many traders know and understand this, the market tends to respond more to the number of jobs created or lost, because it points (albeit far less reliably) towards future trends.  The Unemployment Rate, which is again significantly more reliable, paints a picture of the current situation – and the markets are always trying to gain insights into the future. 

 

A few additional notes to ponder regarding the reporting of job numbers…because more people enter the workforce than depart it on a monthly basis due to reasons such as population growth, a need to remain in the workforce longer, immigration etc, there needs to be somewhere between 150,000 – 200,000 new jobs created every month just to keep the status quo for a relatively stable rate of unemployment.  

 

Another interesting dynamic taking place pertains to the US Census numbers, which are vital for state and federal budgets and appropriations, amongst other things.  This occurs every decade, and as we approach 2010, the government has already begun the temporary hiring of approximately 1.2 Million people.  These individuals will be put to work for just a few months, but will count as new jobs created…therefore potentially making the numbers appear a bit better over the short term. 

 

The NY Fed purchased $25.8B in Mortgage Backed Securities, mainly in the 4% and 4.5% coupons for a total of $533B year-to-date.  With all the additional Bond supply hitting the market, the present Fed purchases are like trying to mop up a flood with a sponge.  And after this morning’s price losses, the Fed has to be a bit concerned. Home loan rates are now closer to 6% than 5%, already choking off refinance and purchase transactions, which serve to help the economy. 

 

So where does the market go from here?  While we expected prices to worsen before improving, today’s decline was more than anticipated.  However, Stocks continue to struggle to break the aforementioned ceiling of resistance, and appear vulnerable for a move lower.  A drop in Stocks should provide a relief rally for Bonds, as money flows out of one and into the other.  And while a move back towards previous levels looks to be a stretch, we could see some gains that still make it worthwhile for people to refinance.  Where are those “experts” that told everyone to wait for that 4% interest rate now? 

 

Source:

Michael Delzer
First Class Financial Services
(720) 904-9048, www.fcfsdenver.com
Home Mortgages with Honesty, Integrity, Service & Trust

 

 

Additional Resources:

Buyer Resources

$8000 First-time Homebuyer Tax Credit and Downpayment

Getting Pre-Qualified and Pre-Approved for a Home Loan – what is the difference?

Location is the number one factor in real estate investment – Top Five Location Criteria