Mortgage Rates Plummeted

Mortgage rates plummeted today.  If you recall, two weeks ago, there was strong support that the Feds were raising rates either this month, or if not, by July.  But what happened today basically wiped out that notion and sent the rates back to where they were back then.

This morning’s May employment report was a shocker, the lowest job increase going back to 2010. The report was so off the mark that uncertainty and confusion is dominating now. Opinions flying, investors, traders and economists, an me - catching our collective heads over the weakness in job growth and lower revisions in March and April. What we know in the data this morning is almost 500K left the job market in May, could be baby boomers retiring, could be signaling future job losses. Increasing minimum wages and increasing productivity, along with the labor participation rate down. It all sending up flares.

The stock market got hit, the DJIA at its low -148 but as the shock factor eased the indexes rebounded right into the close. The 10yr note yield dropped to 1.70% its long term resistance and held most of the gains but it will be difficult to break through it now because investors and economists will not be easily shaken, although in my opinion they should be.

Recent economic reports are weakening as we saw this morning’s ISM services sector index lower than thought, most of the other key measurements in May and April have shown general softness. Monday, one of the most critical for Janet Yellen, she is scheduled to speak to the World Affair Council at 11:30 and again at 1:00PM. She will have to address the issues. I suspect she will hold her optimistic outlook for economic growth and will not toss the towel about rate increases. She still has the June employment report that she can hang onto, and it is very likely there will be upward revisions. Even so - in my judgement this report and the other recent weak data, the Fed has to sit tight for a few months. A moving target, prior to this unusual and shocking drop in job growth I was in the camp the Fed should move to simply get what markets were thinking behind the Fed, and providing another stop gap the Fed is going to need before the end of the year if our forecast of recession proves correct.

Next week we are light on data, with none coming in on Monday, but Yellen does speaks twice. Tuesday Q1 productivity and unit labor costs, a very important report considering today’s employment report; Treasury will auction 3yr note, April consumer credit. Wednesday 10yr note auction. Thursday claims, April wholesale trade, 30yr bond auction. Friday U. of Michigan consumer credit. Not much data, the auctions will be key but next week will also have the jobs report to continue chewing on. Speculation about the Fed will be debated widely. Janet Yellen’ two speeches on Monday likely to carry through the rest of the week.

In summary, what a shocker for employment, and just like that we are out of the range and pushing toward lower rates.  It is overwhelmingly tempting to lock in here, but we will not see the true improvements to pricing until this leg down is confirmed for a couple days.  Between the weak data domestically, and foreign economic uncertainty, I am a believer that we will see this rally continue.  Loans on track to close in the next 30 days can consider floating, but I would only consider locking those closing within 2 weeks.  Monday could prove to be very interesting.