How Goes the Job Market?

The Story behind the Jobs Report

Though I have heard a few different reports on the job market results for April, I hadn't heard this spin on the numbers.  Perhaps my head was in the sand!!

Jim points out though we had 288,000 jobs added and unemployment fell to 6.3% that it wasn't all great news.  Part of the cause was what seems a continuing decline in "participation" in the work force.

Jim notes the Labor Force Particapation Rate fell o 62.8%.  Though we all know the number of retirees will be a growing part of our population over time, considering that 37.2% or over 1/3 of the population able to work are not working or choose not to work is a daunting prospect.

Though the short term impacts is the movement of money from stocks to bonds and the related lessen pressure for mortgage rates to rise, it doesn't bode well to have a decreasing number of workers completing all the work.

Lets hope as the economy improves that the participation rate will also ramp up even if it means reported unemployment nudges slightly higher until those new partcipant locate work!!

Provided to you Exclusively by Jim Belote   For the week of May 05, 2014 | Vol. 12, Issue 18

Jim Belote Branch Manager, MBA Union Mortgage Group Phone: (757) 395-LOAN Fax: (757) 351-6471 E-Mail: jim@jimbelote.com 582 Lynnhaven Parkway, Suite 300 Virginia Beach, VA 23452

In This Issue...

Last Week in Review: The Jobs Report for April and GDP for the first quarter headlined a busy week. Plus, the Fed announced more tapering. Forecast for the Week: The economic calendar is light, with only three reports ahead. View: Inventorying your home is easy with this free software.

Last Week in Review

Read between the lines. That sentiment certainly applies to the Jobs Report for April. Read on for details. There was good news in the labor sector, as 288,000 jobs were created in April. This was well above the 210,000 expected and the largest month-to-month increase in two years. In addition, the Unemployment Rate fell to 6.3 percent, the lowest level since September 2008. However, all was not rosy within the report. The Labor Force Participation Rate (LFPR) fell to 62.8 percent, matching a 35-year low. The LFPR measures the proportion of working-age Americans who have a job or are looking for one, and it should be moving higher in a recovery. It was also estimated that 806,000 people dropped out of the labor force. All in all, while this report shows the labor sector is improving, there is still a long way to go. Also worrisome, the first read on Gross Domestic Product (GDP) for the first quarter of 2014 came in at an anemic 0.1 percent. This was below expectations and down from the 2.6 percent recorded in the final quarter of 2013. The 0.1 percent was the weakest performance in three years. This report shows that, while the worst of the recession may be behind us, the recovery is far from over. The other major news last week came from the Fed, which announced more tapering to its Bond buying program. The Fed will now purchase $25 billion in Treasuries and $20 billion in Mortgage Bonds (the type of Bond to which home loan rates are tied) each month to help stimulate the economy and housing market. This is down from the original $85 billion per month that the Fed had been purchasing. What does this mean for home loan rates? Remember that weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve. We saw some of this dynamic in the markets last week as Bonds and home loan rates rallied after some of the weak news that was reported. In addition, the Fed is expected to continue tapering its purchases throughout the year—but whether Bonds and home loan rates improve or worsen with further tapering remains to be seen. These are key stories to monitor as we head into the warmer months. The bottom line is that now remains a great time to consider a home purchase or refinance, as home loan rates remain attractive compared to historical levels. Let me know if I can answer any questions at all for you or your clients.

Forecast for the Week

After last week's big reports and the Fed meeting, this week's economic calendar is on the light side. The week kicks off on Monday with the ISM Services Index, a national non-manufacturing index. Productivity for the first quarter of 2014 will be delivered on Wednesday. Initial Jobless Claims will be delivered, as usual, on Thursday. Last week's claims surged to 344,000, the highest level since the end of February. Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond on which home loan rates are based. When you see these Bond prices moving higher, it means home loan rates are improving—and when they are moving lower, home loan rates are getting worse. To go one step further—a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning. As you can see in the chart below, Bonds and home loan rates were able to rally last week despite the volatility. With a quiet economic calendar ahead, Bonds could be taking their cue from Stocks this week, and I'll be watching the markets closely. Chart: Fannie Mae 4.0% Mortgage Bond (Friday May 02, 2014)

The Mortgage Market Guide View...

Home Inventory Made Easy Here's a tip you can use yourself and pass along to your clients, friends and family members—whether they've owned their home for decades or they're just settling into homeownership. Imagine the nightmare of having your home damaged or destroyed. To make matters worse, imagine trying to remember the contents of your home for insurance reporting and replacement. Would you even be able to remember? Unfortunately, this is the exact situation thousands of Americans find themselves in every year. Now's the time to make sure it never happens to you! Here's how: Homeowners can create a home inventory list with ease thanks to free access to the Insurance Information Institute's "Know Your Stuff®" software. The software is user friendly and takes just four easy-to-follow steps. Plus, it provides free secure storage online so you can be certain your inventory is accessible in the event your home is destroyed, and it's also available as a smartphone app. After the quick setup, you create a name for each room in your home—for example, kitchen, living room, family room, or master bedroom—and simply add the items each room contains. A drop down list is available with the most common household items, as well as the specific information required by insurance companies in case a claim needs to be filed. Want to add a picture or a receipt for a large ticket item? No problem, just upload the image. Once the home inventory is completed, it's a good idea to have your insurance agent review the list just to make sure your home has adequate coverage. Check it out at www.knowyourstuff.org Economic Calendar for the Week of May 05 - May 09 Date ET Economic Report For Estimate Actual Prior Impact Mon. May 05 10:00 ISM Services Index Apr 54.1 53.1 Moderate Wed. May 07 08:30 Productivity Q1 0.3% 1.8% Moderate Thu. May 08 08:30 Jobless Claims (Initial) 5/03 328K 344K Moderate

The material contained in this newsletter is provided by a third party to real estate, financial services and other professionals only for their use and the use of their clients. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is without errors. As your mortgage professional, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you. In the unlikely event that you no longer wish to receive these valuable market updates, please USE THIS LINK or email: jim@jimbelote.com If you prefer to send your removal request by mail the address is: Jim Belote Union Mortgage Group 582 Lynnhaven Parkway, Suite 300 Virginia Beach, VA 23452 Vantage Production, LLC is the copyright owner or licensee of the content and/or information in this email, unless otherwise indicated.   Vantage Production, LLC does not grant to you a license to any content, features or materials in this email.   You may not distribute, download, or save a copy of any of the content or screens except as otherwise provided in our Terms and Conditions of Membership, for any purpose.

A Mixed Blessing: Lower Unemployment

The very last statement of the Mortgage Matters newsletter really says it all:

"So rising rates are a mixed blessing, but a blessing that in the grand scheme of things will prove beneficial."

There is a lot of surprise in the market that employment went down though the number of new jobs was lower than expected.  Interesting twist provided to this information is share.  I am not sure lower participation in the economy can ever be a "good thing".    

Only when a lower employment rate equates to more people adding to the country's output is it a truly good sign.

Keeping you updated on the market! For the week of  January 20, 2014 MARKET RECAP Can We Trust the Numbers? We'd like to think we can, but we have to ask, even if we ask tongue-in-cheek: Are these numbers real and do they reflect the state of the economy? We're referring to the employment numbers released last Friday, which we found to be highly unusual and very surprising. According to the Bureau of Labor Statistics , the unemployment rate dropped to 6.7%, the lowest it has been since the Bush Administration. That's the good news, and news we can understand, given strong economic growth in the waning months of 2013. The bad news – and the news that left us scratching our heads – is that payrolls increased by a mere 74,000 in December, which fell far short of the consensus estimate for 193,000. Even more disconcerting, many of the new jobs – 55,000 – were in retail, which tends to be a lower-compensated segment of the economy. We were, quite frankly, expecting job growth to hover near 200,000, especially when considering payrolls increased 241,000 (revised up from 203,000) in November and 200,000 in October. We thought elevated monthly job growth would coincide with gross domestic product , which had risen through most of 2013. But at least the unemployment rate is falling, you might reason. This is a point of contention among economists, because it's falling on falling labor participation . Those working or seeking work has dropped to 62.6% of the population, the lowest since 1978. As recently as 2008, the labor participation rate was at 66%. Many market commentators fret over the low labor participation rate. But there appears to be a mitigating factor: There is evidence the lower participation rate is related to a higher retirement rate. If that's the case, today's flaccid labor participation rate is less dire than first appearances might lead us to believe. Employment and economic growth is a recurring theme in these pages because of their importance to the housing and mortgage markets. We've said repeatedly that we'd love to see more jobs and more economic growth, even if they lead to higher lending rates. The upside to disappointing job growth is falling mortgage lending rates, which is what happened this past week. Bankrate.com reports the average rate on the 30-year fixed-rate mortgage dropped nine basis points to 4.57%. Freddie Mac's survey shows the average rate on the 30-year loan fell 10 basis points to 4.41%. The sizable drop in mortgage rates over the past couple weeks has ignited application activity, which we're glad to see. The Mortgage Bankers Association's latest survey shows that refinance activity jumped 11% last week. More important, purchase applications increased 12%. The surge in purchase applications leads us to believe that job growth for December was an aberration. After all, a loan is frequently contingent on the borrower being employed. So if the December job numbers prove to be an aberration, then today's lower lending rates are likely an aberration, and also a window of opportunity. If the January job numbers move up to the 200,000 range, you can be assured mortgage lending rates will move up with them. Recent positive economic reports, along with our instincts, lead us to believe January's payroll numbers will be closer to 200,000 than 100,000. Economic Indicator Release Date and Time Consensus Estimate Analysis Mortgage Applications Wed., Jan. 22, 7:00 am, ET None Important. A sustained increase in purchase application activity would improve the housing-market outlook. FHFA Home Price Index (November) Thurs., Jan. 23, 9:00 am, ET 0.4% (Increase) Important. Recent pricing data point to a slowdown in monthly and yearly home-price appreciation. Existing Home Sales (December) Thurs., Jan. 23, 10:00 am, ET 4.95 Million (Annualized) Important. Tight inventory continues to limit overall sales growth. Leading Indicators (December) Thurs., Jan. 23, 10:00 am, ET 0.5% (Increase) Moderately Important. The trend in recent months is encouraging, pointing to sustained economic growth. A Mixed Blessing Do lenders prefer higher or lower interest rates? The answer isn't straightforward. Higher lending rates translate to higher income as long as the rate at which a lender borrows (generally a short-term rate) to fund a loan remains unchanged. On the flip side, higher rates lead to lower lending activity. We still think higher lending rates are in our best interest long term. We've noted many times that higher rates are reflective of the two important market variables we mention above – economic growth and job growth. Both can easily compensate for higher rates. If job growth is accompanied with rising wages, home affordability remains relatively unchanged. Higher rates also lead to more accommodating lending standards. We'll all agree that standards are tight today, possibly overly so. But Federal Reserve data lend credence to our assertion: When rates were rising last year, lending standards showed a measure of easing. This makes sense; higher rates lead to more profitable lending opportunities. What's more, the risk of lending to lower credit-quality borrowers is mitigated by price-appreciating collateral. So rising rates are a mixed blessing, but a blessing that in the grand scheme of things will prove beneficial.