June 7th, 2024 4:57 PM by T. Fanning
Hello, I hope you’ve had a great week!
Today's positive economic report challenges mortgage rates. Rising wages drive inflation and delay Federal Reserve rate cuts. Predictions for a rate decrease by the Fed have shifted to later in the year due to strong employment and stagnant inflation. Rates were rolling earlier in the week, dropping a good amount. That decrease was erased today causing rates to end the week flat.
Next week will be busy for financial and mortgage markets. Key events: Tuesday's 10-year Treasury Note auction and midweek inflation indexes and FOMC meeting. Expect market and mortgage rate movements.
We offer Conventional, FHA, VA, USDA, Jumbo and regular construction financing. Some of our niches include: Chenoa Fund loans (100% FHA financing); Conventional 0% down; Conventional, FHA and VA 1x Close Construction-Perm; 1.50% Down FHA Advantage Program; CHFA Financing; HomeStyle renovation program; and a Jumbo, 5% down program. We can also do non-traditional programs! To see a detailed list of programs, visit our website: www.homeloanmortgageco.com/mortgageprograms
Last Updated: 6/7/24
Friday's bond market has opened sharply lower following surprisingly strong employment data. Stocks are having a much more muted response to the news than bonds. The Dow is currently up 31 points while the Nasdaq is down 38 points. The bond market is currently down 34/32 (4.42%), which should translate into an increase in this morning's mortgage rates of somewhere between .375 and .625 of a discount point.
This morning's economic headlines came from May's highly important governmental Employment report at 8:30 AM ET. It revealed the U.S. employment sector was stronger than thought last month. Of the three major headline figures that come from the report, the two more influential readings showed much stronger than expected results. The good news for mortgage rates was an uptick in the unemployment rate, moving from April's 3.9% to 4.0% last month. This was the first time it has been at 4.0% or higher since January 2022.
The bad news came in the 272,000 payrolls added to the economy during the month, greatly exceeding expectations that were in the neighborhood of 185,000. There were downward revisions to April and March's payrolls, but they totaled only 15,000. This is an insignificant number considering the size of the variance in May's job figures.
Another issue in this morning's report was the 0.4% increase in average hourly earnings that exceeded forecasts of 0.3%. The increase also moved the annual increase from April's 4.0% to 4.1% last month. Bonds are particularly sensitive to this reading because it is related to inflation and bonds are less attractive to investors in a rising inflation environment. Yields tend to rise when inflation is rising and mortgage rates usually track bond yields.
Overall, today's report is bad news for mortgage rates in several ways. The obvious is rising wages and their direct relationship to broader inflation in the economy. Another is that the report most likely further delays a potential Fed rate cut, putting into question whether or not we may actually see key short-term rates start moving lower this year after all. The general consensus last year was the Fed would make their first move early this year, but a stall in the downward trend in inflation and employment strength pushed back predictions to the May or June FOMC meetings. Those predictions had already been revised to later in the year before today's employment news. Now, some market participants feel that trying to predict when the Fed will start is just an outright guess with little chance of accuracy. Bonds are responding to it accordingly this morning.
Next week will be another busy one for the financial and mortgage markets. It starts light with nothing of importance scheduled for Monday and no data set for Tuesday either. The first event we will be watching is Tuesday's afternoon results announcement of the day's 10-year Treasury Note auction. Over the following two days there are a couple of closely watched inflation indexes being released and another FOMC meeting that includes revised economic projections from the Fed. We should see plenty of movement in the markets and mortgage rates next week, particularly during the middle days. Look for details on all of the scheduled events in Sunday evening's weekly preview.
If I were considering financing/refinancing a home, I would....
Lock if my closing were taking place within 7 days... Lock if my closing were taking place between 8 and 20 days... Lock if my closing were taking place between 21 and 60 days... Float if my closing were taking place over 60 days from now...
This is only my opinion of what I would do if I was financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.*
*https://www.homeloanmortgageco.com/DailyRateLockAdvisory
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