On a positive note, the unemployment rate remains steady at 4.6% and is seen as the only piece of good economic news within the report.
This morning's surprisingly weak Jobs Report has helped the Bond climb further above the 200-day Moving Average. For now, I recommend clients float (i.e. not lock) and I will be watching closely as the market volatility WILL continue!
The bond market had a 53 basis point (bp) jump! (i.e. a mortgage will cost a half point less - in fee, not rate - on Monday than beginning of Friday! Or about 0.125% better in rate.)
Note: Above drop in rate/fee may NOT correlate to jumbo loans ( > $417,000) due to current credit crunch - sorry! But it WILL still help... just not as much.
I have seen 50+ bp dives in the past 3 years of monitoring the mortgage backed bond market, but not this big of a jump in ONE day! It's huge. I'm listening to TheStreet.com podcast right now and an analyst stated risk of a recession went from 1:5 chance to 1:3 now. It was a huge job drop. The first decline in payrolls since August 2003. Every number since then has been in the black... usually 100K+ more jobs created then lost. Recession on they way? I believe so.
When the housing sector makes up 1/4th of GDP and you have a huge contraction in there, it also affects the psyche of the general consumer (most especially when their home equity has been the financer of their consumption lifestyle! We know it's not their wonderful savings - even with last month's savings major rate reversal which showed we didn't have a negative savings rate in 05 and 06 when cash out refi's were more popular than American Idol but we as a society collectively saved a half cent for every dollar earned! (As a side note, don't you love accounting revisions! The BEA has revised their figures in 38 of the past 41 years!)
SO, if the source for American consumerism has dried up - and with dropping home values and tighter mortgage guidelines, it definitely has dried up in comparison to 2002-2006! - then guess what's to follow!? That's right, consumer spending (CS). And since housing had made up almost 1/3 of CS lately, guess what that means - that about 45% of America's GDP (the other components of CS) will also experience a dip in coming months.
Additionally, job losses equate income loss. Anyone who's experienced unexpected job loss - and worse, sought work with only unemployment checks coming in for months on hand, remember the tech fallout!? - knows that personal consumption takes a back seat to survival! October's employment numbers will tell a big picture. Will there be revisions? Will it be another negative month? If a trend develops watch out!
Will our 4% GDP bubble burst like housing did? Unlikely, especially since our economy outside of housing is still going strong (only 5% off of all time highs on Wall Street, employment is still at 4.6% - the lowest of every nation on this Earth, technology is doing VERY well and posed to get better, and exports are also way up - primarily due to the weak dollar (another conversation entirely!) BUT, if the lending markets don't open up and increase liquidity (which is the heart of global finance - we've already seen several corporate take overs and hedge fund buy outs come to a halt due to lenders throwing up their stop signs), then expect a deeper recession to occur.
What does a recession mean for mortgage rates? A drop in rates! The Fed will ease monetary policy and drop there target on the Fed Funds Rate by 0.75% in all likelihood by the end of the year (big question now is whether it'll be 25 bps or 50 bps at their next meeting on September 18 meeting.
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