After falling for several weeks, stronger than expected economic data caused mortgage rates to turn a little higher late this week. Upside surprises in important labor market, housing, and manufacturing reports were negative for mortgage markets and positive for stocks.

Following Friday morning’s better than expected Employment report, mortgage rates moved higher. Against a consensus forecast for a decline of 110K jobs, the economy lost 54K jobs in August. Temporary census workers accounted for a loss of 114K jobs, and the private sector added 67K jobs. The June and July figures saw significant upward revisions as well. The Unemployment Rate rose to 9.6% from 9.5%, matching expectations, as the labor force grew by about 550K workers.

After several months of housing data which has failed to meet expectations, this week’s data contained relatively good news. Investors were expecting July Pending Home Sales to remain at June’s record low levels, but instead they rose 5% from June. Pending sales are a leading indicator for the housing market, so home sales may pick up a little in coming months. The chief economist of the National Association of Realtors (NAR) expects “improved affordability conditions” to boost home sales, but warned that a housing market recovery will be a “long process.”

On the first Friday of each month, the Bureau of Labor Statistics releases Non-Farm Payrolls data for the month prior. 

The data is more commonly called “the jobs report” and it’s a major factor in setting mortgage rates for residents of Washington State and homeowners everywhere. Especially today, considering the economy.

This is because, although it’s believed that the recession of 2009 is over, there’s emerging talk of new recession starting.

Support for the argument is mixed:

1. Job growth has been slow, but planned layoffs touch a 10-year low
2. Consumer confidence is down, but beating expectations
3. Consumer spending is weak, but not declining

In other words, the economy could go in either direction in the latter half of 2010 and the jobs market may be the key. More working Americans means more paychecks earned, more taxes paid, and more money spent; plus, the confidence to purchase a “big ticket” items such as a home.

Jobs growth can provide tremendous support for housing, too.

Today, though, jobs growth was “fair”. According to the government, 54,000 jobs were lost in August, but that reflects the departure of 114,000 Census workers.  The private sector (i.e. non-government jobs), by contrast, added 67,000. 

In addition, net new jobs was revised higher for June and July by a total of 123,000.  That’s a good-sized number, too.

Right now, Wall Street is reacting with enthusiasm, bidding up stocks at the expense of bonds — including mortgage-backed bonds.  This is causing mortgage rates to rise.  Rates should be higher by about 1/8 percent this morning.

Home affordability took a slight hit this week after the Federal Reserve’s release of its August 10 meeting minutes.

The “Fed Minutes” is a lengthy, detailed recap of a Federal Open Market Committee meeting, not unlike the minutes published after a corporate conference, or condo association gathering. The Federal Reserve publishes its meeting minutes 3 weeks after a FOMC get-together.

The minutes are lengthy, too.

At 6,181 words, August’s Fed Minutes is thick with data about the economy, its current threats, and its deeper strengths. The minutes also recount the conversations that, ultimately, shape our nation’s monetary policy.

It’s for this reason that mortgage rates are rising. Wall Street didn’t see much from the Fed that warranted otherwise.

Among the Fed’s observations from its minutes:

• On the economy : The recession was deeper than previously believed
• On jobs : Private employment is expanding slowly
• On housing : The market was “quite soft” in June

Now, none of this was considered “news”, per se. If anything, investors were expecting for harsher words from the Fed; a bleaker outlook for the economy. And, because they didn’t get it, monies moved to stocks and mortgage bonds lost.

That caused mortgage rates to rise.

The Fed meets 8 times annually. Its next meeting is scheduled for September 21, 2010.  Until then, mortgage rates should remain low and home affordability should remain high. There will be ups-and-downs from day-to-day, but overall, the market is favorable.

Mortgage markets improved last week despite a major mortgage bond sell-off Friday afternoon. Prior to the jump, conforming mortgage rates had cut new, all-time lows by Thursday, only to lose up to 0.250 percent on the last day of the week.

Meanwhile, the same type of news that drove rates lower Monday through Thursday also contributed to rates rising Friday — revised projections for the U.S. economy.

Early in the week, “bad” news piled on which, in turn, lowered expectations for the economy and pushed mortgage rates down:

• Existing Home Sales dropped 27% from June
• Single-Family New Home Sales dropped 12% from June
• Purchases of “big ticket” items plunged

Then, on Friday, two events revised the market’s expectations back higher:

• Q2 GDP was revised lower, but not as low as had been expected
• Fed Chairman Ben Bernanke said the economy will keep expanding through the end of the year and into 2011

When Chairman Bernanke talks, markets listen. His comments about the U.S. economy helped fuel that late-Friday surge in mortgage rates last week.

This week, the momentum could continue — depending on the data. 

There’s a lot for markets to digest this week including key inflation figures from the government; home value data from Case-Shiller; Fed Minutes from the Federal Reserve; and, the always-important jobs report due Friday.

Since April, mortgage rates have been on a downward trajectory and that may continue this week.  Or, it may not. If you own a home and haven’t talked to your loan officer about a refinance, now is as good a time as any — rates are at historic lows and could rebound at any time.

Last June, mortgage rates rose 1.125% in 10 days. Under the right circumstances, it could happen again.

Unlike many Mondays, tomorrow does bring us one of those reports. July’s Personal Income and Outlays report will be released early tomorrow morning, giving us a measurement of consumer ability to spend and current spending habits. It is expected to show an increase of 0.2% in income and a 0.3% increase in spending. Weaker than expected numbers would be considered good news for the bond market and mortgage rates.

The Conference Board will post their Consumer Confidence Index (CCI) for August late Tuesday morning. This index measures consumer sentiment about their personal financial situations, giving us a measurement of consumer willingness to spend. That is important because consumer spending makes up two thirds of the U.S. economy. A decline in confidence would indicate that surveyed consumers probably will not make a large purchase in the immediate future. That sign of economic weakness should drive bond prices higher, leading to lower mortgage rates Tuesday. It is expected to show a reading of 50.0, which would be a small decline from July’s 50.4. The lower the reading, the better the news for bonds and mortgage pricing.

Also Tuesday is the release of the minutes from the last FOMC meeting. There is a pretty good possibility of the markets reacting to them following their 2:00 PM ET release, especially if they show some divisiveness by its members. It will be interesting to see some of the Fed member’s views on the economy and inflation and if they will hint what the Fed’s next move may be. But this is one of those events that can cause significant mo vement in rates after its release or be a non-factor. I suspect that this particular release will cause a little movement in bond prices, but not enough to significantly affect mortgage pricing.

Wednesday’s only important news is the release of the Institute for Supply Management’s (ISM) manufacturing index at 10:00 AM ET. This index measures manufacturer sentiment and is expected to show 53.0, which would be a decline from last month’s reading of 55.5. A reading above 50 means that more surveyed manufacturers felt business improved during the month than those who felt it worsened. A larger than expected decline in the index would likely cause selling in the stock markets and lead to an improvement in mortgage rates Wednesday.

There are two reports scheduled for Thursday. The first is the revised 2nd Quarter Productivity numbers, which measures employee productivity in the workplace. Strong levels of productivity allow the economy to expand without in flation concerns. It is expected to show a downward change from the previous estimate of a 0.9% decline. Forecasts are currently calling for a 1.6% drop, meaning productivity was weaker than previously thought. This would be negative news for the bond market and mortgage rates.

July’s Factory Orders data will also be released Thursday morning. This report measures manufacturing sector strength and is similar to last week’s Durable Goods Orders, but includes orders for both durable and non-durable goods. It is expected to show a 0.3% increase in new orders. A smaller than expected rise would be favorable for bonds, but I don’t see this data causing much movement in rates unless its results vary greatly from forecasts.

The biggest news of the week comes Friday morning. The Labor Department will post the unemployment rate, number of new jobs added or lost and average hourly earnings for August early Friday morning. The ideal scenario f or the bond market and mortgage rates is rising unemployment, a larger than expected drop in payrolls and earnings to remain unchanged. Analysts are expecting to see that the unemployment rate moved from 9.5% to 9.6% and that 118,000 jobs were lost during the month. Weaker then expected readings would be very good news for bonds and lead to lower mortgage rates Friday. However, if we get stronger than expected numbers, mortgage rates will probably spike higher Friday.

Overall, I expect to see the most movement in rates Friday, but Tuesday and Wednesday should also be fairly active. Also worth mentioning though is the fact that next Monday is Labor Day so all markets will be closed. The bond market will not close early this Friday, but many traders may head home for the long weekend after Friday’s data is posted. This means that trading will likely be thin Friday afternoon even though the markets will still be open. This could lead to additional volatility in rates as traders prepare for the long weekend, so please be careful this week if still floating an interest rate.

If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Lock if my closing was taking place between 8 and 20 days… Lock if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

©Mortgage Commentary 2010

With home prices holding firm and mortgage rates still dropping, home affordability is reaching new heights.

According to the quarterly Home Opportunity Index as published by the National Association of Home Builders, more than 72 percent of all new and existing homes sold between April-June 2010 were affordable to families earning the national median income.

It’s a slightly higher reading as compared to last quarter, and the second highest reading in the survey’s history.

As with all aspects of real estate, however, home affordability varies by locale. 

For example, 97.2% of homes sold in Syracuse were affordable for families making the area’s median income, earning the New York city its first “Most Affordable Major City” designation.  Indianapolis was the first quarter winner.

On the opposite end of the spectrum, the “Least Affordable Major City” title went to the New York-White Plains, NY-Wayne, NJ area for the 9th consecutive quarter.  Just 19.9% of homes are affordable to families earning the local median income, down 1 percent from last quarter.

The rankings for all 225 metro areas are viewable on the NAHB website but regardless of where you live, buying a home is as affordable as it’s ever been in history. Furthermore, because home values are in recovery and mortgage rates may rise, the market is ripe for home buyers in Washinton State.

All things equal, buying a home may never be this inexpensive again. If you were planning to purchase later this year, you may want to move up your time frame.

The number of home resales plunged by 1.4 million units in July, according to the National Association of Realtors®’ Existing Home Sales report.

It’s a drop of 27 percent from June; single-family home resales are at the report’s lowest levels since May 1999.

Furthermore, because of the sharp drop in sales volume, home inventories are spiking.

Homes for sale nationwide fell just short of 4 million units in July and, at the current sales paces, it would take 12.5 months for the existing inventory to be absorbed.

Home supply was just 8.9 months in June.

For home sellers in Olympia , the Existing Home Sales report is a bit of bad news.  Fewer sales and larger inventories put negotiation leverage in the hands of the buyers which, in turn, creates downward pressure on home prices.  It may also increase time-on-market.

For home buyers, however, the data is decidedly welcome. After a stimulus-driven spring buying season that favored sellers, the summer and early-fall market seem to favor buyers. More choices and more leverage is a positive.

It helps that home affordability is up, too. 

Although there’s reports that home values are rising, their modest gains are more than countered by the ongoing rally in mortgage rates. Freddie Mac says that 30-year fixed rate mortgage rates are at their lowest levels in history and, at today’s rates, every one-eighth drop in mortgage rates roughly offsets a 1.5% increase to home price.

Mortgage rates are down 0.75 percent since mid-April.

The tightening in mortgage-lending policies that characterized the last 3 years appears to be slowing.

According to the Federal Reserve’s quarterly survey of senior bank loan officers, roughly 1 in 10 lenders added mortgage qualification hurdles between April and June. It’s a huge departure from just 2 years ago when the mortgage industry was facing its first wave of challenges. 

During that period, eight in 10 lenders added hurdles.

For mortgage applicants in Lacey , this quarter’s Fed survey results signals that mortgage lending may have reached its limits of new monthly restrictions.

Since 2007, mortgage guidelines have become increasingly restrictive. There’s extra scrutiny on assets and tax returns; employment history is given more weight; loan purpose matters.  There’s a bevy of traits that can stand between you and an approval that didn’t exist a few years ago.

That said, lots of homeowners are still getting loans.

Verifiable income, good credit scores and equity are the “magic formula” and banks want to lend to good credit risks. And the best news for those that qualify is that mortgage rates are fantastic right now.

According to Freddie Mac, mortgage rates are as low as they’ve been in history.

So, if you’re among the many wondering if now is the right time to buy a home — or refinance one — remember that, although mortgage guidelines likely won’t get worse, mortgage rates probably will.

Mortgage markets stalled last week in back-and-forth trading as Wall Street grappled with weak housing data, falling builder confidence, and worsening jobs numbers nationwide.

Because markets were volatile, rate shopping was challenging.

Conforming mortgage rates did managed to make a new all-time low last Thursday but quickly gave up those gains. Most of Friday afternoon was spent in the red and, as a result, for the second straight week, mortgage rates failed to fall overall.

But, although last week’s action puts a damper on this summer’s mortgage rate rally, the Refi Boom is still going strong.

According to Freddie Mac, as compared to April 8 when mortgage rates touched their recent high-point, pricing is hugely improved across 3 popular loan products.

• 30-year fixed : Then, 5.21%; Now, 4.42%
• 15-year fixed : Then, 4.52%; Now, 3.90%
• 5-year ARM : Then, 4.25%; Now, 3.56%

As an example of potential savings, a homeowner in Washington State with a $250,000 30-year fixed rate mortgage would save $96 per month at today’s rates as compared to April’s. 

Over the life of a loan, that’s a savings of $34,560.

This week, it’s unlikely that the Refi Boom will meet its end, but that doesn’t mean you should wait for rates to fall further. Mortgage rates tend to change quickly and without notice, and should rates rise, you may find that you’ve missed the market bottom.

If today’s rates appeal to your finances and budget, consider locking something in and moving forward.

July’s Existing Home Sales will open the week’s data late Tuesday morning. The National Association of Realtors will release this report, giving us a measurement of housing sector strength. It covers approximately 85% of home sales in the U.S., but usually does not have a major influence on bond trading and mortgage rates unless it varies greatly from analysts’ forecasts. It is expected to show a decline from June’s sales, meaning the housing sector is still softening. This would be good news for the bond market and mortgage rates because a weak housing sector makes a broader economic recovery difficult.

The Commerce Department will post July’s Durable Goods Orders early Wednesday morning, giving us an important measure of manufacturing sector strength. This data tracks orders at U.S. factories for big-ticket items, or products that are expected to last three or more years. A much weaker reading than the expected 0.5% rise that is expected would indicate that the manufacturing sector is not as strong as thought. This would be good news for bonds and should lead to lower mortgage rates Wednesday morning.

Also scheduled for release Wednesday is July’s New Home Sales data. This report is the least important release of the week. It will give us another indication of housing sector strength and mortgage credit demand, but only tracks approximately 15% of all home sales. It usually doesn’t have a major impact on bond prices or mortgage rates unless it varies greatly from forecasts.

Friday is another multi-release day with the first rev ision to the 2nd Quarter Gross Domestic Product (GDP) and the University of Michigan Index of Consumer Sentiment both scheduled for release. The GDP is the total of all goods and services produced in the U.S. and is considered to be the best measurement of economic activity. This reading is the second of three that we see each quarter. Last month’s preliminary reading revealed that the economy grew at an annual rate of 2.4%. Friday’s revision is expected to show that the GDP actually rose only 1.4%. A larger than expected downward revision should help lower mortgage rates Friday, especially if the inflation portion of the release does not get revised higher. There will be a final revision issued next month, but it probably will have little impact on mortgage rates.

August’s revision to the University of Michigan’s Index of Consumer Sentiment is also due Friday morning. It helps us track consumer willingness to spend and is expected to show little change from August’s preliminary reading of 69.6. If it revises lower, consumers were less confident about their personal financial situations than previously thought. This would be good news for the bond market and mortgage rates because waning confidence usually means that consumers are less likely to make large purchases in the near future.

Also worth mentioning are a couple of Treasury auctions that may affect bond trading and mortgage rates this week. The two most important are Wednesday’s 5-year Note and Thursday’s 7-year Note sales. Results of this week’s auctions will be posted 1:00 PM ET each day. If investor interest is strong in the auctions, we can expect the broader bond market to rally and mortgage rates to move lower. However, lackluster demand could lead to bond selling and higher mortgage rates Wednesday and Thursday afternoons.

Overall, we will likely see the most activity in rates Tuesday morning, but Wednesday and Thursday ar e also fairly important. If we manage to get weaker than expected results in the key reports and the auctions go well, we should see mortgage rates close the week lower than tomorrow’s opening levels. But stronger than expected results in the economic reports and disappointing results in the Treasury sales will most likely lead to rates moving higher this week.

If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Lock if my closing was taking place between 8 and 20 days… Lock if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

©Mortgage Commentary 2010