It's been a busy and bleak week in the markets with numerous economic reports, stimulus chatter, corporate earnings (losses) reports, and the list goes on.
The unemployment lines are growing longer. On Wednesday, the ADP survey showed a grim private sector job loss of 522,000 for January. Today, Initial Jobless Claims (these are people filling for the first time) registered at 626,000 which is just a little higher than the estimates of 580,000. This is the highest level since 1982 and points to an ugly report tomorrow. Tomorrow is the Grandaddy of Jobs Reports - and the markets are already braced for a bad report. Economist are expecting 500,000 jobs lost in January. Unemployment numbers are also expected to show an uptick and many believe the "real" number is actually higher.
Typically these reports of job losses everywhere would give Mortgage Bonds a boost and improve home loan rates. But this is not a "normal" world we are living in today. Home loan rates are well past the glory days of Dec 17, Jan 8 and Jan 9th.
In addition to the economic reports this week, the Stimulus Plan has been on the table in Washington. After making its way thru the House last week, Senate Republicans were seeking changes to the plan. Senator Ensign of Nevada shared on CNBC that Republicans would like to see the government bring down home loan rates to 4%. Not that we all wouldn't like to see those rates, but the government cannot mandate home loan rates. The only rate they can control is the Fed Funds Rate. Home loan rates are the result of the performance of Mortgage Backed Securities. To drive home loan rates further, there needs to be a tremendous amount of purchase activity in the 4.0% and 4.5% coupons.
But if the Fed is purchasing mortgage backed securities, why aren't rates lower? The Fed purchase program of Mortgage Backed Securities isn't working. Why? They are purchasing mostly the higher rate bonds - 5.5% coupons. These represent mortgages around 6.125% -6.25% and will likely be prepaid due to the refinance flurry. Currently mortgages are bundled and sold into the 4.0% and 4.5% coupon. So the Fed isn't really helping home loan rates.
Repulicans have expressed their concern that this "stimulus" plan, which they had hoped would boost Jobs and the economy, is more of a "spending" plan.
Last night, the Senate voted to include in the stimulus plan an increase in the current $7,500 tax credit for home purchases to10% of the value of new or existing homes, up to a limit of $15,000. The details are not known...and the bill is not yet passed. As it unfolds, I'll be sure to share with you.
Many say that it all starts with housing. While owning a home is the American dream, it isn't what supports our economy. It's Jobs. People without Jobs don't buy homes.
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