Mortgage Markets In Review : December 8, 2008

In a week in which mortgage markets struggled to find direction, mortgage rates edged higher overall. The weekly increase was the first since mid-November and it may signal higher rates as we head into 2009.

The week's most talked-about story hit the wires Friday.

According to the government, the U.S. economy shed 533,000 jobs last month and the national Unemployment Rate rose to 6.7%.

This was the largest number of jobs lost in any one month since the recession of 1974.

In a normal market, job losses of this magnitude would have caused stock markets and mortgage rates to fall. But, stocks and rates didn't. That story had already been told. On the contrary, both rose. This is because -- while the jobs reports was the most talked-about story last week -- it wasn't the most important one.

Last Monday -- officially -- we learned that U.S. economy is in recession.

Although most of Wall Street knew it already, the official determination was an acknowledgment that "bad economic data" is not only acceptable, but normal given the current conditions.

In other words, when the jobs data was released Friday morning, one reason why mortgage rates rose was because markets somewhat shrugged off the data, saying: "Yeah, of course job losses are up -- we're in a recession, after all."

This is an unfortunate development for rate shoppers because bad data usually anchors mortgage rates lower. Going forward, that won't likely be the case -- at least until the recession is declared to be over.

This week, without much new data being released, markets should trade largely on news of federal intervention and expectations for the U.S. economy. As retail sales figures drip in from the weekend, be wary of stronger-than-expected numbers as that could pull mortgage rates higher. The same goes for Friday's official Retail Sales data for November.

Either way, expect volatility throughout the week -- same as we've seen all year long.

(Image courtesy: Wall Street Journal Online)

How November's 533,000 Jobs Lost May Ultimately Help Mortgage Rates Improve

According to the government, American businesses are cutting staff at an accelerated pace, most recently paring 533,000 jobs this past November.

It's the largest one-month decline since December 1974 and raises the year-to-date job losses to 1.9 million workers.

However, there is a silver lining in the data for all Americans -- both employed and unemployed.

With each piece of negative news about the economy, Washington is more likely to pass new stimulus packages to the benefit of household budgets.

On one front, Federal Reserve Chairman Ben Bernanke has already alluded to further Fed Funds Rate cuts at the Fed's two-day meeting starting December 15. Because the Fed Funds Rate is directly tied to Prime Rate, any cut in the benchmark lending rate would lead "floating" interest rates lower on home equity credit lines and other revolving debt.

And, this talk from the Fed comes on the heels of its $500 billion pledge to buy mortgage-backed bonds. That demand-shifting move was announced last week and drove mortgage rates lower. It also marked the official start of the refinancing boom.

And, lastly, Capitol Hill is already responding to the jobs data with calls for "urgent" action. It's a vague term, to be sure, but history has shown that Congress could pass any number of measures, each meant to put more money into household budgets nationwide.

The U.S. is in a verified recession and Washington is throwing the kitchen sink at it.

The end result is that today's job data is a non-event of sorts for active home buyers. Mortgage markets expected a poor reading and they got it. Normally, data like this would cause mortgage rates to spike, but this is not a normal market.

Source
Employers cut 533,000 jobs in Nov., most since 1974
Barbara Hagenbaugh
December 5, 2008, USA Today