Shiny Trinket

Job numbers show a big increase in the construction trades

The latest jobs report indicates that nonfarm payroll employment rose by 225,000 in January, shattering market expectations of 165,000. The real surprise, however, was the growth of construction-related jobs, which rose by 44,000 alone. BUILDER Magazine says most of the gain occurred in specialty trade contractors, with increases in both the residential (+18,000) and nonresidential (+17,000) components. Construction added an average of 12,000 jobs per month in 2019.

In January average hourly earnings for all employees on private nonfarm payrolls rose by 7 cents to $28.44. Over the past 12 months, average hourly earnings have increased by 3.1%. Average hourly earnings of private-sector production and non-supervisory employees were $23.87 in January, little changed over the month (+3 cents).

This is a positive development for housing, as the home building sector has been challenged by labor shortages and high costs for several years. “Wages grew at 2.9% on a year-over-year basis in December 2019, but firmed to 3.1% in January,” says BUILDER. “Increasing wage growth is a welcome sign for households looking to buy a home this spring.”

The National Association of Realtors’ chief economist Lawrence Yun, wrote, “The unemployment rate remains at super-low levels across all ages, all ethnic groups, and every other grouping of workers. That’s due to the unrelenting 20 million net job additions for over a decade since 2010.” He goes on to say that even in commercial real estate, vacancy rates have tilted down, implying more construction is needed.

Source: Sources: NAR, BUILDER, TBWS

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage Backed Securities (MBS) which are traded in real time, all day in the bond market.  This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events.  When MBS pricing goes up, mortgage rates or pricing generally goes down.  When they fall, mortgage pricing goes up.  Tracking these securities real-time is critical.  For more information about the rate market, contact me directly.  I’m among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are trending sideways this morning.  Last week the MBS market worsened by -1bps.  This caused rates to move sideways for the week. We saw a good amount of rate volatility through the week.

This Week's Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to impact rates this week: 1) Coronavirus, 2) The Fed, and 3) Domestic.

1) Coronavirus: This is going to continue to drive the markets as bond traders and economists alike are whittling down their 1st QTR GDP estimates for China down to zero. Over 400 million people in China are in lockdown mode, with parts of Beijing now joining that group. While some factories are scheduled to reopen, millions upon millions of factory workers will continue to be locked in their residences. The "official" number of deaths now tops 900, which is more than the SARS outbreak. The real number of deaths is probably closer to 10K, according to nonstate controlled reports. The impact of prolonged global supply chain disruption is a big concern.

2) The Fed: Fed Chair Jerome Powell will give his semi-annual monetary policy report to the House Financial Services Committee on Tuesday and then the Senate on Wednesday. His written report was already turned in on Friday. The bond market will pay close attention to his live responses to the questions.

3) Domestic: The biggest reports of the week will be Thursday's Consumer Price Index and Friday's Retail Sales, although the markets will largely discount any strength and assume that headwinds from the global slowdown (coronavirus) will cause lower readings in the near term.

This Week's Potential Volatility: Average

While rates have moved sideways for the last week or two, we did see rate volatility from day-to-day. Look for the same this week with much of the focus turning to the coronavirus. The economic data denoted above is important this week. However, markets will likely dismiss any inflationary readings with the effects of the coronavirus hanging over markets.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Matt McGuire is a Mortgage Loan Originator with Edge Home Finance, specializing in residential home loans for real estate purchase and refinances. He enjoys making his clients happy while helping them achieve their dreams and goals. Matt has spent the last 10 years in the mortgage and banking industries, gaining valuable experience in loan origination, loan processing, underwriting, post-closing/loan servicing, and management. This unique blend of skills and knowledge helps Matt walk all of his customers through each step of the loan process with the care and guidance they deserve. Matt was born in Florida, is a proud Richfield Spartan, and currently resides in Lakeville with his wife, two dogs, and two cats. Matt is a huge sports fan and also enjoys traveling, fishing, and boating.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

Matt McGuire (NMLS 1535656) - A Member of Edge Home Finance Corporation (NMLS 891464)