Search This Blog

Thursday, June 25, 2015

Mortgage Bond Market Analysis - Jobless Claims Thursday

It's Jobless Claims Thursday and the story isn't jobless claims.  The expectation was for 271K claims and that's exactly what we got.  The big news is in personal expenditures.  I've been saying for a while that the Consumer Confidence numbers were out of control and weren't translating into spending - the name "Consumer Confidence" has spending in it's name after all and CONSUMERS WEREN'T CONSUMING in spite of their amazingly high confidence levels.

I theorized that the confidence was coming from the improving jobs situation that still has a long way to go, especially when you take into account the real unemployment rate based on workforce participation - but that's a topic for another day.  Most consumers don't understand or aren't familiar with the work force participation rate so when they see the unemployment rate dropping and more jobs being created, they think the economy is back on track - and it is getting better.  The point is that Personal Spending came in at .9 vs. expectations of .7 - maybe consumers are starting to consume and I'm hoping it's not an anomaly.  Here's a look at how the mortgage bond market is reacting to this mornings data:

We know that about 2/3s of our economy is driven by consumer spending so if consumers buy homes and then buy stuff for their homes, it allows people who sell that stuff to make more money and hire more people so that their are more jobs and more people who have more money to spend and it's a great cycle.  Hopefully we are just at the beginning of something good but as the economy starts to get better, inflation starts to kick in which is why the Fed raises interest rates.  People who are getting mortgages want the lowest rate they can get and the lower the rate, the more they can afford.  From a societal point, however, rates are low when the economy is bad because it helps to stimulate the economy (businesses and consumers are more likely to borrower when rates are low) and when the economy is doing well, rates are typically in the 6 - 7% range - give or take.  If we want a strong economy, we need to be willing to accept those rates.

Currently, the benchmark bond is retracing its steps from yesterday and is down 20 basis points.  At it's present level, the 10 year treasury note has some room to the upside which could also mean more selling.  I'd be defensive and lock here and if rates get better, I'd float down - assuming the lender you are working with has this option.

Feel free to call me if I can help with anything mortgage related:  702-812-1214.  Make it a great day.

No comments: