CHM Blog

Contradiction of robust job growth and a sluggish housing market isn’t over yet

For the past few years, fears of a recession have been fickle, teasing us at every turn. Despite its low-rumble threat, however, unemployment remains low — both very good and very bad for the housing market.

Realtor.com’s Claire Trapasso and the U.S. labor market say 300,000 more jobs were added in March, bringing the unemployment rate down to 3.8%. “A low unemployment rate is good for the housing market because most people don’t buy homes if they’re unemployed—or worry they’re about to be laid off,” she says. “However, it also means the U.S. Federal Reserve may hold off cutting interest rates for a little longer as it tries to bring inflation down to its 2% target.” The result? Mortgage rates are not expected to go down any time soon.

Realtor's chief economist Danielle Hales says it’s a mixed bag. “The weaker the labor market appears, the more likely we’ll see rate cuts sooner. But the more likely it is people will struggle to find jobs and not be interested in making large purchases like homes.”

While rates appear theoretically low (one generation recalls them in double digits), they are far from rates many homebuyers—already dealing with high prices and fierce competition over a limited supply of homes on the market—had been dreaming of this spring.

The mid-Atlantic’s Bright MLS Chief Economist Lisa Sturtevant said, “Some had been hoping that the Federal Reserve would cut interest rates at its June meeting,” in a statement. “However, with today’s strong jobs report, it is all but certain that the first rate-cut won’t be before July. As a result, mortgage rates are likely going to stay elevated for longer” — something that poses a challenge for buyers as the housing market kicks off in earnest.

“Homebuyer demand is still strong, but there will be some prospective homebuyers who are going to wait for rates to come down later this year,” Sturtevant said. “The traditionally busy spring housing market could be pushed into summer—or even into the fall—if buyers hold out for the Fed’s rate cut and subsequent drops in mortgage rates.”

Those who do wait? There is a good possibility they might find more homes available to purchase after more than 39,000 people were hired in the construction industry in March. That may translate into more homes going up at a time when they are desperately needed.

“More housing supply is on the way in future months,” Lawrence Yun, chief economist of the National Association of Realtors, said in a statement.

Realtor,TBWS

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I'm among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are under pressure today. The MBS market worsened by -34 bps last week. This may have been enough to increase mortgage rates or fees. The market experienced high volatility last week.

This Week's Rate Forecast: Higher

Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) Inflation, 2) Central Banks and 3) The Fed.

1) Inflation: We have three big reports this week that address inflation: CPI, PPI and Import Prices. It was a month ago that higher than expected readings in both CPI and PPI kicked off a round of worsening MBS prices. They are expected to continue to expand.

2) Central Banks: We will have important rate decisions and policy statements and speeches from several central banks this week with the spotlight on Thursday's ECB. The European Central Bank had been considered (two meetings ago) to be on a path towards being the first Central Bank to start cutting rates right about now... however that expectation has soured and we will be looking for more forward guidance out of the ECB.

3) The Fed: One of the main sources of downward momentum in the MBS markets over the past two weeks has been various Fed Speeches that seem to support being "data dependent" and sticking to the 2% target rate and that the Fed's rate landscape may only include 1 rate change this year instead of the 3 that are still priced in. This week we will also focus on Fed Speak and will get the Minutes from the last FOMC meeting.

Treasury Auction: Thursday's 30Y Bond Auction will be the most important of the week.

04/09 3 year note.

04/10 10 year note.

04/11 30 year bond.

This Week's Potential Volatility: High

This morning markets continue to be under pressure after last week's data. Volatility has started high as markets adjust to a new trading channel.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.