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.


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

A busy week for housing, for home loan rates 2.91% is key

One of my favorite days of the year took place on Saturday when Berkshire-Hathaway released its annual shareholder letter.  If you have never partaken in Warren Buffett’s simple, humorous, and sage advice I encourage you to dive in HERE.  Have kids?  This is all the financial education you need to give them.

Mortgage Rates

Mortgage rates held steady last week and even improved modestly for 30-year fixed rate amortizations.  I had written about the significance of the US 10-year treasury note yielding 2.91%.  Fortunately that technical level did hold and today it is trading at 2.86%.  As long as it trades below 2.91% I expect mortgage rates to hold steady (and possibly improve?).

Housing Data

This week’s economic calendar will tell us a lot about housing.  Earlier today new home sales were reported below economists’ expectations.  However, they are coming off record highs reported in November of 2017.

On Tuesday we’ll see the most current home price index reports from Case-Shiller and the FHFA.  On Wednesday the National Association of Realtors will release the latest pending home sale report.

The Fed

New Fed Chairman Jerome Powell will address lawmakers on Capitol Hill for the first time on Tuesday and Thursday.  Larger projected government spending deficits have increased speculation that inflation pressures will rise.  Inflation is the primary driver of home loan rates so we will be listening closely to his comments.

The Outlook

As long as the yield on the US 10-year treasury note remains at or below 2.91% I feel comfortable floating.  However, longer-term trends are still concerning so my advice is use caution this week.

Current Outlook: cautiously floating

Government Shutdown Pauses Mortgage Rate Momentum

After two days of the government being shutdown it looks like congress has reached an agreement to fund Federal operations.  Just wondering, if this happens again can we ask Canada to govern us?

According to estimates a government shutdown costs the US economy $1 billion per day.  Bad news for the economy is often good news for mortgage rates.

Home loan rates need the help because last week they continued to march higher.  Interest rates in the US are currently at the highest level since July of 2014.  Let’s not lose perspective though, mortgage rates are still historically low.

Furthermore, most experts predicted that mortgage rates would rise in 2018 so this should come as no big surprise.

This week’s economic calendar is relatively light (aside from the government shutdown).  On Wednesday we get existing home sales and the FHFA house price index.  I expect the latter to reflect continued appreciation due to lack of supply.  On Thursday we get the latest reading on new home sales and on Friday durable goods orders.

Assuming that the government funding agreement comes together today I am going to maintain a locking bias.  Momentum is not on our side.

If not the uncertainty of the shutdown could help mortgage rates improve in the near-term.

Current Outlook: locking

How words will impact mortgage rates this week

Mortgage rates essentially held steady last week despite the stock markets continued rally.  The Dow Jones Industrial Average has returned 23% year-to-date while the NASDAQ index is up 27%.  Despite those gains mortgage rates have held steady this year.  I expect they will likely increase by .50%-.75% in 2018.

The job’s report

Friday’s all important jobs report showed stronger than expected employment.

According to the survey 228,000 new jobs were created during the month of November, the unemployment rate remained at 4.1%, and average hourly earnings only ticked up by $.05 ($26.55).

Healthy economic growth with low inflationary pressure persists which is good news for the real estate market.

Central Banking

This week’s economic calendar is loaded with central bank meetings.

The US Federal Reserve board will meet starting on Tuesday and is widely expected to hike short-term interest rates by .25% with that announcement expected on Wednesday.

The Fed does not directly control home loan rates but their comments can cause volatility in the financial markets.  Furthermore, with short-term rates increasing and long-term rates unchanged the yield curve is flattening which may signal a recession is on the horizon (or higher longer-term rates).

On Thursday both the European Central Bank (ECB) and the Bank of England release monetary policy statements as well.  Both are expected to keep their target rates unchanged but economic growth in both regions has been positive and many onlookers believe the ECB will discontinue their bond-buying program in 2018.

If the ECB does roll back their quantitative easing program it would likely cause rates in Germany to increase which would likely pressure US interest rates higher as well.


Back in the US inflation measures have come in pretty close to the Fed’s 2% target this year.  On Tuesday we’ll get the latest reading on the Producer Price Index followed by the Consumer Price Index on Wednesday.  Inflation is the primary driver of mortgage rates so continued tameness will be a positive sign.

From a technical perspective mortgage backed bond prices have dropped below important technical support.  It will be hard for prices to reverse back above the multiple layers they have broken below.  I will recommend a locking bias.

Current Outlook: locking

Good & Bad news for mortgage rates in Fed’s announcement

The Fed announced today that they would keep open market operations in the mortgage-backed bond (MBS) market active into early 2010.  This is great news for mortgage rates.  There had been growing speculation that the Fed would discontinue the TALF program which has been credited with keeping mortgage rates near historic lows as the eocnomy gradually improved.  However, the Fed also mentioned that they would not increase their commitment to purchase MBSs from the current $1.25 trillion amount.  Therefore, we still expect mortgage rates to rise into 2010.

The Fed’s TALF program has created substantial demand for MBSs since the program was announced last November.  The additional demand has pushed MBS prices higher which pushes yields lower.

Here are a couple excerpts from the WSJ.com article:

*The Federal Reserve, in a move aimed at keeping interest rates low for home buyers through early next year, decided to extend and gradually phase out its purchase of mortgage-backed securities.

*Mainly because of heavy government intervention in the mortgage market, interest rates remain near their lowest levels in decades. Rates on 30-year fixed-rate conforming mortgages currently average 5.24%, down from a recent peak of 5.81% in June but up from the year’s low of 4.84% in late April, according to HSH Associates, in Pompton Plains, N.J.

*The Fed is about two-thirds of the way through its mortgage-purchase program, which was launched late last year to support mortgage lending, housing activity and broader credit markets. The central bank’s decision to complete the full $1.25 trillion in purchases of mortgage-backed securities — rather than “up to” that amount, as it said in August — ended speculation that it might stop short, as a handful of policymakers have suggested. The Fed still plans to buy up to $200 billion in debt issued by Fannie Mae and Freddie Mac.

*Mortgage rates were expected to rise throughout the fall and winter as the Fed wound down its program to buy the mortgage-related securities. Even if they inch up, now they’re less likely to increase as sharply, given the Fed’s longer time horizon that stretches to March.

Rate Update September 1, 2009

Mortgage rates are unchanged from yesterday.

As we warned in yesterday’s ‘rate update’ there is plenty of economic data out this week.

This morning the National Association of Realtors announced that pending home sales rose for the 6th straight month in June.  Pending home sales rose 3.2% in June which was more than analysts had expected.  This is good news for the housing market and the economy as a whole.

In a separate report the Institute for Supply Management reported that manufacturing activity in the US grew at a faster clip than analysts had expected.

It wasn’t all good news though.  The Commerce Department reported that construction spending unexpectedly declined in July.

Despite 2 out of the 3 economic reports coming out better than expected stocks are trading lower this morning which is helping support mortgage-backed bond prices.

Current outlook: floating bias