Might this Friday’s jobs report signal an imminent recession?

On this day in 1963 a toy company in California that initially experienced success by marketing the “Pluto Platter”, which later became known as a Frisbee, filed patent for their next big product.

25 million units were sold in the first four months and set off a huge fad across American culture.  What was the product?………the hula hoop.

Mortgage Rates

Interest rates continue to circle around 9-month lows but there are some signals which suggest interest rates could trend higher.

US-China Trade Talks

According to multiple sources US and Chinese negotiators are close to finalizing a new trade deal between the two economic powers.  For months there has been uncertainty about the economic impact of US-China trade relations.

Uncertainty tends to help US mortgage rates improve so by removing the uncertainty I think we will see upward pressure on US interest rates.

Jobs Report

It’s jobs week which means we’ll see the ADP employment report on Wednesday, jobless claims numbers on Thursday, and the all-important jobs report from the Bureau of Labor Statistics this Friday.

The markets are currently expecting 175,000 new jobs created for February.  However, I will be paying special attention to the unemployment rate in this month’s release.

The unemployment rate hit a low of 3.7% in September and November of 2018.  Since then it has increased to 3.9% in December and 4.0% in January.

If the unemployment rate continues to trend higher then I think an economic recession is imminent.  As the graph above shows every time the unemployment rate has established a cyclical low a recession has followed.

The potential good news is that mortgage rates tend to improve during economic recessions.

Outlook

Although mortgage rates may benefit from a recession the current economic headlines are not interest rate friendly, so I am going to recommend a locking bias.

Current Outlook: locking

Uncertainty keeps mortgage rates at low levels

Think “fake news” is a new phenomenon?

Back in 1935 an organization called the Clark Foundation based in Cooperstown, NY publicized a false story claiming that US Civil War hero Abner Doubleday invented the game of baseball in that town 100 years earlier.

Despite the story being inaccurate it helped the organization raise money to build the baseball hall of fame which inducted its first members on this day in 1936.

Every year around this time baseball fans eagerly await the election results to see which former players will be inducted in that year’s class.

Brexit uncertainty

The financial markets are eagerly awaiting a vote in the British Parliament today which will set the stage for Brexit which is currently scheduled to take place on March 29th.

Britain still does not have an approved trade agreement with the European Union and if Brexit takes place in the absence of one it is likely Britain will fall into recession.

Many analysts are predicting Brexit will get delayed so an agreement can be reached but there is still much uncertainty.

…more uncertainty

Political uncertainty is not contained to Britain.  Here in the US we recently reopened the Federal government after the longest shutdown in history.  The threat of another shutdown looms three weeks away and it is not a clear that a longer funding bill will get passed in time.

Furthermore, US and Chinese trade negotiators continue to meet periodically but by all accounts are still far from a comprehensive trade deal.

Political and economic uncertainty helps US mortgage rates remain low.  Should these issues get resolved I would expect mortgage rates to move higher by .25%-.50%.

Home prices still rising

The Case-Shiller Home Price index report was issued earlier today and showed that home prices nationwide increased by 5.2% from a year earlier.  Here in Portland home prices only increased by 4.4% from last year.  Many in the media are painting a doomsday scenario.

However, for a customer who puts 5% down on a $400,000 home ($20,000) and sees their home value increase by 4% in the first year (+$16,000) that is better than they could expect from the stock market.

Outlook

Still to come this week is the Fed monetary policy decision (no rate hike expected) and the all-important jobs report due out on Friday.  For now we can continue to float but I am concerned rates may have hit a bottom at current levels.

 Current Outlook: floating

Mortgage Rate Update February 25, 2016

Mortgage rates are similar or slightly better compared to Monday.

China’s stock market plunged for the second time this year.  The Shanghai Composite Index fell by 6.4% today as investors showed concern for the state of the Chinese economy.  The volatility in China has redirected capital into the US debt markets which helps rates move lower (click HERE to learn how).

In case you missed it Portland led the country in year-over-year home price appreciation according to the latest Case-Shiller Home Price Index report that was released on Tuesday.  According to the report home prices rose by 11.4% from December 2014 to December 2015.  Some onlookers have begun to ask if a bubble is forming here in Portland.  Click HERE to see why we’re not there…..but not ruling it out in the future.

Case-Shiller Home Price Index- Portland, OR
Case-Shiller Home Price Index- Portland, OR

In other housing data, the National Association of Realtors NAR released monthly data on existing home sales.  Nationally home sales increased to a 6 month high.  However, the number of home sales actually decreased in the West Region from December to January (still higher on a year-over-year basis).  A lack of supply was blamed.

NAR chief economist Lawrence Yun commented, “The spring buying season is right around the corner and current supply levels aren’t even close to what’s needed to accommodate the subsequent growth in housing demand.”  You can say that again.

From a technical perspective the outlook looks modestly positive.  I will shift to a floating bias.

Current Outlook: floating bias