Good Friday + Jobs Report Data = Major Mortgage Rates Movement

Today's mortgage rates are getting slammed on the heels of the Non-Farm Payrolls report. Instead of hitting the consensus estimate figure of 135,000 jobs, the report showed a very large 180,000 new jobs created in March.

Unemployment levels dropped to 4.4% pointing to underlying strength in the economy.

Mortgage bonds are selling off right now and that is driving mortgage rates higher.

On a normal trading day, the reaction in the trading pits would be extreme. But, with today being Good Friday, there aren't many people in the office, so to speak. Fewer traders results in lower-than-normal trading volume and that is causing prices to swing even more wildly than normal.

Mortgage bonds have been down as much as 29 basis points today and when bond prices go down, mortgage rates go up.

To make a tough situation tougher, the stock market is closed today. When it re-opens Monday, expect a continuation of today's bond sell-off as dollars move out of it and into the stock market.

More bonds sales will cause mortgage rates to climb even higher.

(Image Courtesy: Wall Street Journal)

The Magic of Video Games: Ride the 117-Year Housing Roller Coaster

Want some help putting home values in historical perspective?

Using the video game Roller Coaster Tycoon, Speculative Bubble created a roller coaster whose tracks follow home values (adjusted for inflation) from 1890 to 2007.

The ride lasts three-and-a-half minutes, but the last thirty seconds really hammer home the point.

You can almost hear the people screaming...

The Domino Effect of Sub-Prime Lending on Move-Up Home Buyers

Wondering how the dramatic change in sub-prime mortgage lending will impact you?

Try this stat on for size:

Since 1998, 1.4 million families have used sub-prime mortgages to buy their first home.

As sub-prime lending guidelines get tighter, there will be fewer first-time home buyers and that impacts every homeowner in the country.

The reason lies in "move up" buying.

When a sub-prime family buys their first home, the sellers of that home likely "move up" to a bigger home. In turn, the sellers of the second home may move up, too. And of the third home. And fourth, and so on.

Somewhere in that chain of events, all of our homes are represented.

Without sub-prime mortgages, maybe the move-up buyer is less prevalent with fewer buyers we could see higher home supply.

We are all connected in the real estate economy. What's good for one, is good for all. And, the reverse is true, too.

Source
Testimony of Michael D. Calhoun
Center for Responsible Lending
March 27, 2007
http://www.responsiblelending.org/pdfs/House-Calhoun-Mar27-final.pdf

It's A Waiting Game Until Thursday Afternoon

There is little on the domestic front to move markets today as traders wait for Friday's jobs report.

The jobs data will take on more significance this month than in recent months because of Ben Bernanke's testimony to Congress last week.

The Fed Chief spoke more strongly about inflation than we've heard from him in a long while.

That's partly in response to market reaction to the Fed's press release last week.

When the Fed softened it's language on inflation, markets interpreted that to mean that the Fed planning to lower the Fed Funds Rate sometime soon in 2007. Bernanke needed to set the record straight (and he did).

With an eye on labor markets, Friday's release takes on added importance and mortgage rates may move wildly as early as Thursday afternoon as traders place their bets.

Expectations are for 120,000 new jobs created in March.

The Week In Review (April 2, 2007) : What To Watch For

Last week, Ben Bernanke's testimony before Congress served as a stark wake-up call that inflation is not going away so easily.

Later in the week, hard data backed that up. PCE, the Fed's favorite inflation gauge, beat expectations and pushed the year-over-year increase to 2.4%.

The Fed hopes that PCE will be 2.0% by 2008 and -- if markets aren't lowering inflation on their own -- the Fed can increase the Fed Funds Rate to help drive PCE down to that figure. A higher FFR would squeeze profit margins for business and that would slow down the economy.

This week, the major data event is Friday's jobs report. Stronger than expected growth in jobs will lead to a jump in mortgage rates because markets will shift their expectations for inflation and a weakening dollar.

In addition, rising oil prices may also place upward pressure on mortgage rates so watch for news from Iran about oil supply disruptions or other conflicts.