November 13, 2013

Last Week in Review

Table Source: Mortgage Success Source

The Jobs Report for October revealed that employers added 204,000 new jobs, well above the 100,000 expected. In addition, the number of job creations for August and September was revised higher by 60,000. The unemployment rate ticked up to 7.3 percent from 7.2 percent and was in line with estimates. The Labor Force Participation Rate (LFPR), a measure of how many people are looking for work, fell to 62.8 from 63.2 and remains at 35-year lows. It’s important to note that in a recovery, the LFPR should be moving higher, not lower. Overall this was a good report on the surface, but there are still hurdles to jump in the coming months.

In other key news, the first of three readings on third quarter Gross Domestic Product (GDP) showed that the U.S. economy expanded by 2.8 percent, up from the second quarter reading of 2.5 percent and well above expectations. The rise was due in part to a buildup in inventories, a pickup in trade, and increased spending by state and local governments.

However, within the report, consumer spending, the main driver of the U.S. economy, fell to 1.5 percent, the slowest rate in three years. This is one reason the strong Jobs Report was significant: If consumers aren't confident about their jobs or are out of work or underemployed, spending will continue to be soft. That would not a good sign for the U.S. economy going forward.
What does this mean for home loan rates? The Fed’s current Quantitative Easing program continues to help keep home loan rates attractive. Remember that the Fed has been purchasing $85 billion in bonds and Treasuries each month to stimulate the economy and housing market. The Fed has said that its decision regarding when to taper these purchases will be dependent on economic data. If economic data in the coming weeks is strong, like the Jobs Report was, the Fed could discuss tapering its purchases in its December meeting of the Federal Open Market Committee. This could have a significant impact on home loan rates heading into 2014.

Home loan rates remain attractive compared to historical levels and now remains a great time to consider a home purchase or refinance.

Forecast for the week

The bond markets were closed on Monday in observance of Veterans Day while stocks were open for a regular session. The rest of the week features just a few economic data points.

  • The light economic calendar this week doesn't kick off until Thursday with Weekly Initial Jobless Claims, which continue to hover near the 340,000 range. Third quarter Productivity will also be released on Thursday.
  • Ending the week, there’s news from the manufacturing sector with the Empire State Index on Friday.   

As you can see in the chart below, CoreLogic reported that its Home Price Index, which includes distressed sales, showed that home prices rose by 12 percent from September 2012 to September 2013. September marks the nineteenth consecutive month of year-over-year gains. Economic data points in the coming weeks will be especially important to monitor, as they will influence the Fed’s decision regarding its bond purchases, which could impact home loan rates heading into 2014.

Chart: Core Logic Home Price Index