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Mortgage Update 1.11.16

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Blog by Doug Ingersoll | January 11th, 2016

From Richard Silva at Lonestare Home Lending -
  "I feel the sky tumbling down." Carole King. Global stocks fell, and the Dow lost more than 1,000 points from December 29 to January 7 due to struggles in China, the world's second largest economy. Job creation surged at the end of 2015 here at home, causing additional stir in the markets.

Employers added 292,000 jobs in December, the Labor Department reported Friday. This was well above the 200,000 expected and follows solid jobs creation in October and November. The end of 2015 marked the fifth straight year in which employment grew by 2 million. While month-over-month wage growth from November to December was stagnant at 0.0 percent, year-over-year wage growth was 2.5 percent. The Unemployment Rate remained at 5 percent, a seven-year low.

The Jobs Report is considered a market mover each month; however, continued news of China's economic struggles was the real game changer last week as global markets fell. When Stocks plunge, Mortgage Backed Securities and other Bonds usually improve. Because home loan rates are directly tied to Bonds, home loan rates can improve in the process.

The good news for homebuyers and homeowners right now is that rates are currently hovering near all-time lows.

If you or someone you know has any questions about home loan options, market conditions or current rates, please don't hesitate to contact me.
  Forecast for the Week    
The week has no shortage of economic report releases starting Wednesday, but all of them may pale in the shadow of China's struggling economy.
  • The flurry of reports starts Wednesday with the release of the Federal Reserve's Beige Book.
  • Thursday brings weekly Initial Jobless Claims.
  • Friday is full of reports, including Retail SalesConsumer Sentiment IndexEmpire State Index on manufacturing, and wholesale inflation readings in the Producer Price Index.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve. In contrast, 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.
Richard Silva
Loan Officer
LoanStar Home Lending
Phone: 602.373.3654
NMLS #: 422347
And from Stuart Crawford at VIP Mortgage:

During the first week of 2016, overseas events were the main positive driver for mortgage rates.  The events included geopolitical tensions in North Korea and the Middle East as well as signs of slowing growth in China.  Due to this, mortgage rates ended the week slightly lower. 

Several events caused investors around the world to shift their holdings to safer assets.  On Monday, Saudi Arabia cut diplomatic ties with Iran, raising tensions between these two major powers in the Middle East.  On Wednesday, North Korea announced that it had successfully tested a hydrogen bomb.  Weaker than expected economic data in China released was also positive for mortgage rates.  Investors are worried that China's economy may be slowing more quickly than had been expected.  Investors reacted to these events by reducing the risk in their portfolios, primarily by selling stocks and buying bonds, including U.S. mortgage-backed securities (MBS).  The increased demand for MBS causes mortgage rates to decline.

Despite troubles abroad, the U.S. job market surged in December.  Against a consensus forecast of 200K, the economy added 292K jobs in December (and had upward revisions to prior months adding another 50K).  The U.S. added an average of 284K jobs over the last three months, and 2.65 million jobs were added in 2015. 

Surprisingly strong job gains often cause mortgage rates to move higher.  However, there was little net change in rates after this report.  One reason is that average hourly earnings, an indicator of wage growth, fell short of expectations with a flat reading.  The lack of wage inflation was positive news for mortgage rates.

Looking ahead, additional labor market data, the JOLTS report, will come out on Tuesday.  JOLTS measures job openings and labor turnover rates.  Retail Sales and the Producer Price Index (PPI) will be released on Friday.  Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator.  Investors will also will be watching for signs of escalation concerning the Middle East. 

Stuart can be reached at 480.776.2954