Jobs Report Due Friday; Mortgage Rates Expected To Change

If you're out shopping for a home this week, or trying to lock a mortgage rate, with Friday comes home affordability risk. Consider locking your mortgage rate today.

The March Non-Farm Payrolls report is due for release Friday morning and mortgage rates are expected to move. Unfortunately for the home buyers and rate shoppers of Minneapolis , we can't know in which direction that will be.

The prudent play may be to lock your mortgage rate today.

On the first Friday of each month, the Bureau of Labor Statistics releases its Non-Farm Payrolls report. More commonly called "the jobs report", the release is a bona fide market-mover, month after month. 

Depending on how the March jobs data reads, FHA and conforming mortgage rates could rise -- or fall -- by a measurable amount post-release. This is because today's mortgage market is closely tied to the economy, and the economy is closely tied to job growth.

The connection between jobs and mortgage rates is basic.

More workers leads to higher levels of consumer spending nationwide and consumer spending accounts for the majority of the U.S. economy.

In addition, when more workers are paid, more taxes are paid, too. Local, state and federal governments collect more monies when payrolls are rising which, in turn, benefits projects that purchase new goods and services, and, in many cases, results in the hiring of additional personnel.

Job creation can be a powerful, self-reinforcing cycle. 

Between 2008 and 2009, the economy shed 7 million jobs. It has since recovered half of them. Friday, analysts expect to count another 200,000 jobs created. If the actual number of jobs created exceeds estimates, look for stock markets to gain and bond markets to lose. This leads to higher mortgage rates -- especially with the Federal Reserve zeroed in on the labor market.

If the actual number of jobs created in March falls short of expectations, however, mortgage rates may fall.

Unfortunately, by the time the report is released, it will be too late to act on it. The release is made at 8:30 AM ET and bond markets are closed for Good Friday.

Fed Minutes Causes Mortgage Rates To Rise Suddenly

The Federal Reserve has released the minutes from its last FOMC meeting, a 1-day affair held March 13, 2012. Mortgage rates in Minnesota are rising on the news.

For the un-indoctrinated, 3 weeks after it meets, the Federal Open Market Committee, the sub-group within the Federal Reserve that votes on U.S. monetary policy, publishes its meeting minutes.

Similar to the minutes from a corporate event, or condominium association meeting, the Fed Minutes recounts the conversations and debates that transpired throughout the meeting.

The Fed Minutes is a lengthy publication, often filling 10 pages or more. By contrast, the more well-known publication from the FOMC -- its post-meeting press release -- tends to span 6 paragraphs or less.

The extra detail contained within the Fed Minutes is Wall Street fodder, especially given the current economic uncertainty. Investors look to the Federal Reserve for clues about what's next for the U.S. economy.

Lately, the minutes has made an out-sized impact on mortgage rates. The Fed's words continue to swing the mortgage-backed bond market.

Today is no different.

March's Fed Minutes is a dense one and markets are reacting. The text shows a central bank softly divided on future U.S. economic policy, and in debate about whether existing market stimulus should be removed.

The Fed has said that it's expecting high levels of unemployment and low levels of inflation in the coming months, an outlook that leaves little reason to introduce a third round of stimulus. This is the primary reason why mortgage rates in Minneapolis have been climbing since the Fed Minutes' release.

Since mid-March, mortgage rates dropped on speculation that the Federal Reserve would introduce a mortgage bond purchase program this quarter. Today, those expectations have reversed.

According to the minutes, the Federal Reserve believes that additional market stimulus would only be necessary "if the economy lost momentum", or if inflation remained too far below 2 percent per year. Currently, Core PCE -- the Fed's preferred gauge of inflation -- is running slightly below 2 percent.

The Federal Reserve's next scheduled meeting is April 24-25, 2012 -- its third of 8 scheduled meetings this year.

FHA Mortgage Insurance Premiums Increasing April 9, 2012

Planning to use an FHA-backed mortgage for your next home loan? You might want to get your application in gear today.

Beginning next week, the Federal Housing Administration (FHA) is changing the way it charges mortgage insurance to U.S. homeowners. For the fourth time since 2010, FHA mortgage insurance premiums are rising for all FHA-backed homeowners.

For FHA Case Numbers assigned on, or after, Monday, April 9, 2012, there are two planned changes.

First, FHA Upfront Mortgage Insurance Premiums (UFMIP) will increase by 75 basis points to 1.75%, or $1,750 per $100,000 borrowed. Upfront Mortgage Insurance Premium is paid at closing, and typically added to an FHA borrower's loan size.

The current UFMIP rate is 1.000 percent.

Second, annual FHA mortgage insurance premiums are rising. All new FHA-backed loans will be subject to a 10 basis point increase in annual mortgage insurance premiums, costing homeowners an extra $100 per $100,000 borrowed per year.

The new FHA annual mortgage insurance premium schedule follows :

• 15-year loan term, loan-to-value > 90% : 0.60% MIP per year
• 15-year loan term, loan-to-value <= 90% : 0.35% MIP per year
• 15-year loan term, loan-to-value <= 78% : 0.00% MIP per year
• 30-year loan term, loan-to-value > 95% : 1.25% MIP per year
• 30-year loan term, loan-to-value <= 95% : 1.20% MIP per year

In addition, for loans above $625,500, beginning with FHA Case Numbers assigned on, or after, June 11, 2012, there will be an additional 25 basis point increase in annual MIP.

To calculate your monthly MIP obligation as a FHA homeowners, multiply your starting loan size by your insurance rate from the list above, then divide by 12.

Note that the FHA mortgage insurance changes apply to new FHA Case Numbers only. If you have an FHA mortgage approval in-process, or an existing FHA home loan, you are not subject to the new MIP schedule. To avoid paying the FHA's new MIP schedule, therefore, begin your FHA mortgage application today.

Once your FHA Case Number is assigned, you're locked in to today's lower premiums.

What's Ahead For Mortgage Rates This Week : April 2, 2012

Mortgage markets improved last week on renewed concerns of a European debt default, and Federal Reserve rhetoric.

Conforming mortgage rates in Minnesota dropped on the news, one week after posting a 5-month high.

A major strike in Spain and growing unrest in Italy, both in opposition to recent austerity measures, have re-ignited fears that the Eurozone may lapse into recession.

These are similar beginnings as with last year's events in Greece. The difference is that Spain and Italy represent a larger share of the Eurozone's overall economy, and a debt default could trigger faster contagion.

Mortgage markets gained on the news in a bid of safe haven buying.

Bonds also gained as Federal Reserve Chairman Ben Bernanke clarified his position on the economy with respect to Fed-led stimulus. Summarized, he said that the Federal Reserve is inclined to keep its accommodative policies in place until the labor market is more fully recovered.

In addition, Chairman Bernanke alluded to making direct mortgage market intervention if U.S. economic growth were to stall in the near future.

The news helped push mortgage rates back below 4.000 percent last week, according to Freddie Mac's weekly Primary Mortgage Market Survey. The average 30-year fixed rate mortgage rate fell to 3.99% for applicants willing to pay an accompanying 0.7 discount plus closing costs.

1 discount point is equal to one percent of your loan size.

This week's mortgage market activity will be holiday-shortened so expect volatility -- especially surrounding Friday's March Non-Farm Payrolls report.

More commonly called "the jobs report", Non-Farm Payrolls details national employment rates and gains or losses in the workforce size. Lately, what's been good for jobs has been good for the economy so if the actual number of jobs created exceeds the 200,000 projected by economists, or if the Unemployment Rate drops off its current 8.3% reading, look for mortgage rates to rise.

In general, economic expansion is bad for mortgage rates throughout Maple Grove and the nation.

Other market-moving news this week includes Tuesday's FOMC Minutes release and Thursday Jobless Claims data.  

Mortgage Rates Fall Back Below 4%

After a brief run-up two weeks ago, mortgage rates are back below 4 percent. It's good news for home buyers and mortgage rate shoppers of Plymouth because with lower mortgage rates come lower mortgage payments.

According to Freddie Mac's weekly Primary Mortgage Market Survey, the national, average 30-year fixed rate mortgage rate fell to 3.99 percent this week from last week's 4.08 percent.

Last week had marked the first time since December 2011 that the benchmark rate crossed north of 4 percent -- a span of 16 weeks.

And, it wasn't just rates that got cheaper this week -- closing costs dropped, too.

Freddie Mac's survey showed that the average number of discount points to accompany a 30-year fixed rate mortgage fell one-tenth of a percent this week to 0.7, where one discount point is equal to one percent of your loan size.

As a real-life example, a $200,000 mortgage with an accompanying 0.7 discount points would be subject to an additional $1,400 one-time closing cost. Last week, that cost was $1,600.

Note, though, that these are average mortgage rates for the nation. On a local level, rates may be higher or lower, and so may the accompanying number of discount points.

For example, in this week's Freddie Mac survey, each U.S. region boasts its own "average rate" :

• Northeast Region : 4.00% with 0.7 discount points
• West Region : 3.94% with 0.9 discount points
• Southeast Region : 4.01% with 0.8 discount points
• North Central Region : 3.99% with 0.6 discount points
• Southwest Region : 4.02% with 0.8 discount points

These rates are each well below the average rates of a year ago when the average 30-year fixed rate mortgage was 4.86%. 

Low mortgage rates can't last forever so if you've been wondering whether now is a good time to buy a home or refinance one; or whether rising rates will harm your monthly budget, the answer may be yes. A weak economy held mortgage rates low last year. An improving economy should push rates higher this year.

Talk to your loan officer and review your home loan options. Looking ahead to spring and summer, mortgage rates appear poised to rise.

Case-Shiller Shows Uneven Recovery For U.S. Housing

Recent data suggests that the U.S. housing market is in recovery. However, the data also shows this to be an uneven recovery.

According to the monthly S&P/Case-Shiller Index, for example, home values rose in three of 20 tracked markets between December 2011 and January 2012. 17 tracked markets showed home prices still in decline.

It's easy to point to the Case-Shiller Index as evidence that the housing market in Minnesota has yet to bottom, but we have to consider the Case-Shiller Index's shortcomings -- specifically in a recovering economy.

For example, the Case-Shiller Index is based on changes in home prices of a single home, through successive sales. This means that to calculate its home price index, the Case-Shiller searches for sales of the same home over a period of time and calculates the difference in contract price. 

This methodology can distort the home price tracker downward during times of weak economy because there is no distinction made for homes sold in foreclosure or as a short sale.

35% of all homes sold in January were "distressed", says the National Association of REALTORS®.

Another distortion in the Case-Shiller Index is that the model neglects all home types that are not of type "single-family residence". This means that multi-unit homes and condominiums are excluded from the Case-Shiller Index model.

In some markets, such as Chicago and New York City, condominiums account for a large percentage of overall sales. 

Lastly, the Case-Shiller Index is published with a "lag", which renders it useless to buyers and sellers of Plymouth in search of real-time, relevant data. The most recent Case-Shiller Index is published with a 60-day delay, and accounts for home purchase contracts written between October and December 2011.

Since October, the U.S. economy has added more than 1 million jobs and the economy has moved into "moderate expansion", according to the Federal Reserve. Data that's two seasons old does little to help us today.

Making sound real estate decisions is about having timely, relevant data at-hand when it's needed. The Case-Shiller Index fails in that respect. It's good for highlighting the U.S. housing market on the whole, as it existed in the past. For real-time market data, though, you'll want to talk with an active real estate agent.

Pending Home Sales Index Remains Strong Into Spring

The housing market took a step back in February, but remains near post-recession highs.

According to data from the National Association of REALTORS®, February's Pending Home Sales Index slipped 0.5 percent from the month prior, to 96.5.

The Pending Home Sales Index is a monthly report which measures the number of homes under contract to sell, but not yet sold, nationwide.

The index is benchmarked to a value of 100, the average level of home contract activity in 2001, the first year that pending home sales data was analyzed. It also happened to be a year of historically-high levels of home contract activity. Therefore, a Pending Home Sales Index reading of 100 suggests a strong housing market nationwide.

The index has read north of 90 since October 2011.

On a regional basis, February's Pending Home Sales Index varied :

• Northeast Region: -0.5 percent from January 2012
• Midwest Region : +5.7 percent from January 2012
• South Region : -3.3 percent from January 2012
• West Region : -2.6 percent from January 2012

Mild weather may have helped the Midwest Region last month but even regional data can only tell us so much. Like everything in real estate, housing data must be local to be relevant.

Throughout the South Region, for example, the area in which contract activity fell most on a monthly basis, there are states which performed better than the regional average, and states which performed worse. Furthermore, even within those states, there are some cities which over-performed, and others which underperformed.

It's why we can't put too much stock in national housing news. Buyers don't buy nationally -- they buy locally.

Today's home buyers and sellers in Plymouth , therefore, should look beyond the national Pending Home Sales Index and into local market drivers. The Pending Home Sales Index can paint a broad picture of the U.S. housing market but for data that matters to you specifically, it's not as widely helpful. 

To get relevant, timely local real estate data, talk to a real estate professional.