CHM Blog

Hiring wakes up, wages still trail

Economists are a careful bunch, so when one starts talking about "green shoots," it's worth listening. Realtor.com's Jake Krimmel used the phrase after October's jobs report, and he had good reason.

Forecasters would have been happy with 65,000 new jobs, more than double the prior month. What arrived was 165,000. And the good news kept coming. Revisions added another 84,000 jobs to August and September, lifting the three-month average to 137,000 from about 51,000 a month ago. Unemployment slipped to 4.1%, right where the Chicago Fed predicted, and labor force participation rose to 61.9%, a touch above the 61.8% expected. Each moved only a smidge, but together they matter. Wages firmed as well, up 0.4% for the month and 3.1% from a year ago, compared with 3.0% in September.

It's still a low hire, low fire market overall, and the numbers could be revised again. Krimmel's point is that the trend matters more than any single month, but you don't get a good trend without a good month.

For the Federal Reserve, a strong report clears the path. Last month's hot inflation reading already made the next rate hike a matter of when rather than if, and a soft jobs number was the one thing that could have complicated December. Now that worry is gone. Hike odds on CME FedWatch rose as expected, and the 10-year Treasury yield edged up on the news. Those two, yields and hike odds, are what to watch for mortgage rates.

A question Krimmel keeps hearing is whether the midterms changed anything for housing. In the short run, not much. The Iran War and its effect on inflation and mortgage rates remain the big wildcard. Getting back to normal in many metros takes more activity, and that depends on buyers regaining enough buying power to leave the sidelines. Mortgage rates have fallen three weeks in a row after a 74 basis point surge from late August to mid-October. Wages are the other half of the equation, though. Annual wage growth of 3.1% is nominal, and it trails September's 3.7% inflation.

Krimmel says it probably won't keep pace with where inflation is headed, so inflation has to come down too. Housing demand needs a more dynamic job market and cooler prices, and October gave us a promising start on the first.

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 heavy pressure today. The MBS market improved by +25 bps last week. This may have been enough to decrease mortgage rates or fees. The market experienced high volatility last week.

This Week's Rate Forecast: Neutral

These are the three things that have the greatest ability to impact rates this week. 1) Inflation, 2) The Fed and 3) Stocks and Oil.

1) Inflation: We will get CPI on Tuesday and PPI on Friday. CPI will get more weight. It is expected to rise at a slower pace than the previous release due to moderation in the oil market. A hotter than expected MOM reading would be negative for rates.

2) The Fed: There are over 15 scheduled speeches by Fed Presidents/Governors this week. The bond market will be sensitive to commentary on inflation and the pace of future hikes.

3) Stocks and Oil: We have seen a strong correlation between tech/chip/AI sell offs and a flight to quality in long bonds, particularly in MBS.

Treasury Auction: Here is this week's schedule

11/09 3 year note

11/10 10 year note

11/12 30 year bond

This Week's Potential Volatility: High

This morning markets have started under pressure. Volatility has started at high levels and will likely stay high during out holiday shortened week.

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.

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