Okay, it’s hard to believe but tomorrow morning is the first Friday of the month again. Where has the year gone? In some ways it has flown by and in other ways it seems like it’s been about two or three years. Know what I mean?
Any way, tomorrow morning is the jobs report that shows the statistics for the month of September. I’ve had a lot of people asking me what I think it’s going to show and what I think it’s going to do to mortgage rates. I’m going to lay out what I think are the four most likely outcomes and their potential impact on mortgage rates. At the end of the piece, I’ll put my “projections” on which one is most likely to occur.
The Jobs Report Comes In Better Than Expected – Remember, it’s not so much the actual number as it is the difference between market expectations and the actual numbers. But, if the jobs report comes in better than expected, here’s what I expect will happen:
- People will feel better than they did about the prospects for a recovery in the economy.
- People and institutional investors will move money (lots of it – how much depends on how much better) from the bond market and cash and put it into the stock market.
- The stock market will have a very nice upward swing.
- The bond market and mortgage backed securities will suffer from the movement of money.
- Mortgage Rates will go up.
The Jobs Report Comes in about as expected – status quo, mediocre, we just sort of limp along. If that’s the case, I expect we’d see a “non-reaction” in the markets.
The Jobs Report Comes in Worse Than Expected – a little bit worse, but not a huge amount worse. If that’s what happens, here’s what I expect:
- People will feel worse about the prospects for recovery in the economy and we’re going to struggle for a while.
- People and institutional investors will move money (lots of it – how much depends on how much worse) from the stock market, it will sell off and the bond market and mortgage backed securities will rally.
- I put this one in bold because it’s important – While the bond market will rally, mortgage rates might fall a little bit, but they won’t fall substantially. Why? A couple of reasons: 1) Fannie Mae and Freddie Mac (and FHA) all need money, desperately. They are going to attempt to pad their profit margins (actually, reduce their losses.) 2) Banks and mortgage lenders are also going to use the opportunity to reduce losses or increase profitability.
The Jobs Report Comes in SIGNIFICANTLY Worse Than Expected – I’m talking a really bad miss. That would spark, in my mind, a couple of things:
- A selloff in the stock market.
- A sell off in the bond and mortgage backed securities.
- Stocks fall, interest rates rise. Investors (not actual investors, but speculators) pull their money out of the markets and into cash.
Now look at the four possible outcomes. Two of them would result in higher rates. One would result in stable rates, and one would result in lower rates (but only slightly.)
I’m going to go on record and say that I think the likelihood of a downward movement in rates is significantly less than the likelihood of an upward turn in rates. Therefore, I’m recommending that if you have the opportunity, lock now. The risk on the upward side is greater than it is on the downward side.
I’ll have more on it tomorrow once we get the report.
Tom Vanderwell
Greg Dallaire says:
Tom,
It’s usually very hard for me to get excited about a mortgage type blog but you sir tell it like it is with a no B.S. approach and I love it! I know that Greg Swann will let you put his posts on your site with a credit back to the orginal article.
I’d love to feature you on my website. Shoot me an email and we can talk!
October 1, 2009 — 4:51 pm
Tom Vanderwell says:
Greg,
That is probably one of the nicest things that someone has said about my writing in a while. You hit the nail on the head on exactly why I write on here and also on Straight Talk.
I’m going to extend to you and any other readers here on BHB the same offer that Greg has extended. Feel free to put any of my writings on your site, but link back to my original article either here or on Straight Talk. (I’m a lot more prolific there than I am here.)
Thanks!
Tom Vanderwell
October 1, 2009 — 5:40 pm
jimi says:
Thanks for laying it out.
I’ll take the other side … rates more likley lower than higher. Stock market sell-off and particularly the continued deterioration in core PCE are better leading indicators. Not to mention any FED led distortions to maintain low-rate environment necessary for recovery.
October 2, 2009 — 5:31 am
Jim Canion says:
Tom I have to commend you for sticking your neck out and recomending a rate lock. Unfortunately it was the wrong thing to do as of your post this morning. The good news is that in a few days your prediction will be on the correct side again as rates rise and this little unexpected glitch caused by the jobs report will be forgotten. We are clearly in uncharted territory as an industry and as a nation so your comments are welcomed.
Jim Canion
IConnect411.com
October 2, 2009 — 9:42 am
Tom Vanderwell says:
Jim and Jimi,
Thanks for stopping by and joining the discussion. I don’t believe that my call was the wrong thing to do in terms of the jobs report. Let me explain:
I laid out four potential scenarios and the possible effects of each.
I said that I felt that the odds of the one scenario that results in lower rates (but only slightly lower) wasn’t the most likely one. When 3 of 4 possible outcomes result in stable or higher rates, that says to me it’s time to lock in the gains we’ve seen recently.
Are rates lower as of this morning? Yes, the ones we got first thing this morning are. But I’ve already heard from 3 of my lender friends on twitter that they have gotten rate reprice sheets for the worse (rates are going back up) so like I said about 2 hours ago:
http://straighttalkaboutmortgages.com/2009/10/02/market-update-change-of-direction/
A lot of the “lock or float” strategy is based on timing (as in how soon do you need the money) but also based on a risk reduction strategy. Float when things are going down but lock in when the forces are potentially going to start the other way. 75% of the potential outcomes this morning would have been “lock” friendly.
I’ve got no problem sticking my neck out on these type of things. I just call them like I see them.
Tom
October 2, 2009 — 9:55 am