Dennis' Mortgage Blog

Mortgage Backed Securities (MBS) prices have soared today on lousy data on jobs and manufacturing for May.  As markets opened stock prices dove and bond prices, including MBS prices, jumped.  Through the day as the dollar and stocks continued to lose ground more and more investment poured into Treasuries and MBS causing yields, interest rates, to drop.

For bond investments, such as Mortgage Backed Securities, price and rates are inversely related.  As the price on a bond increases the yield, or interest rate, decreases; as the price drops the rate increases.  This morning the price on the Fannie Mae 4.0% securities are at their highest level since December 6, 2010.  Today will be the seventh of the last nine trading days that MBS finished the day higher at close than the price at opening.

Setting off the flurry of sales in the stock markets and purchases in the bond markets were two reports, one on employment from payroll company ADP and the other report was from the Institute for Supply Management (ISM). 

With expectations of private sector job growth for May to be around 175,000 new jobs the ADP report came in at less then one-quarter of expectations with only 38,000 new jobs created in May in the private sector.  Following several weeks new jobless claims topping 400,000 every week ADP number highlights the weak employment market across the country.

Backing up the weak job numbers was a decline in the manufacturing index as reported by ISM.  The index is meant to measure activity in manufacturing across the country and for May the index was 53.5, down more than eleven percent from April's index of 60.4.  An index over 50 is considered to show manufacturing is expanding--with 53.5 as the index manufacturing may be expanding but not enough to create the necessary jobs to push the economy into more robust growth.

Housing prices have fallen since the homebuyer tax credits of 2009 and 2010 have ended.  Consumer confidence is dropping as home economists decide whether or not to buy a new pair of sneakers for the kids this summer with their gasoline costs up an average of $168 per month from last year.  Consumer spending is the primary fuel for our economy, with families seeing their equity drop and their daily costs for getting to work and feeding the family going up it appears they are not in the financial position to start spending and pushing the economy into faster growth. 

As we begin the third summer since the American Recovery and Reinvestment Act (the "Stimulus" bill) was passed in February 2009 that cost almost $1 trillion in federal spending and was supposed to halt unemployment at 8%, as we are one year past the "summer of recovery" touted by many in Washington last June, as we are almost through with the Fed's QE2 which along with the initial Quantitative Easing plan pushed almost $2 trillion into the economy, we see very little economic growth for the trillion dollar deficits, and $15 trillion federal debt.  According to those who enacted these plans when they were funded we should be moving along at a sustained pace of economic growth.

Maybe its time for another plan?

Rates are incredible.  If you are considering purchasing a new home to take advantage of the affordable prices, or refinancing, take advantage of this tremendous dip in rates we are seeing. Call me today to determine what are the best options for you.  562-472-1118