The real estate and financial markets were whomped by the weak employment data. Admittedly, there were bits and pieces of good news in the employment report, mostly regarding expanding hours being worked in several of our economic sectors (which could mean that employers may soon have to hire more workers to fill orders). But the stock markets are dragging at this point,  while interest rates are scraping some kind of bottom. Is this as low as they will go? Can they remain this low for long? Stay tuned--we have no answers yet.

The brighter side to all of this, of course, is that interest rates could hardly be more attractive than they are, a fact that is showing up in strong refi applications. It's difficult for most buyers to walk boldly past their concerns and confusions about the current economy and buy real estate, but who can avoid noticing what a good idea that is (for those who can pull it off)? Even though rates may edge a bit lower before this cycle ends, it is difficult to imagine a better time--ever--to arrange real estate financing whose rates prove rewarding for a long, long time. Let's hope consumers grasp this fact. It could mean saving a tremendous amount of money for a lot of borrowers.

 

KEY INDICATORS [6/7/10]

 

Gold $1248.70/ounce [up]

Crude Oil (Brent) $72.21/brl [down]

U.S. Dollar to…

    Euro .8357 [up]

    Japanese Yen 91.27 [up slightly]

6-mo Treasury Bill Yield 0.19%

10-yr Treasury Note Yield 3.18%

[6-month down 2 bps, 10-yr down 11 bps]

11th Dist Cost of Funds 1.825%[-]

30-yr Fixed-rate Mortgage 5.15%

15-yr Fixed-rate Mortgage 4.62%

1-yr ARM 4.23%

[HSH averages rates: 30-yr

down 9 bps;15-yr down 2 bps; 1-yr ARM up 79 bps]

 

Mortgage Bankers Association Mortgage Applications Index

week ending 5/28

  Overall

    639.0 (up 0.9%; up 11.3%

the week prior)

  Purchase Money Loans

    178.0 (down 44.1%; down 3.3%

            the week prior)

  Refinancing Loans

    3336.9 (up 2.4%; up 17%

the week prior)

 

Jobless Claims 5/22

    453,000 – prior week 460,000 – continuing claims at 4.666 m

 

Employment Report May

    431,000 new payroll jobs (mainly census temps); unemployment down to 9.7%

 Consumer Credit Apr

    Up a low 1% m/m – revolving credit down 8.5% - non-revolving up 9.4%

 Weekly Commentary

 “Once the Census jobs disappear, payrolls may even contract in some months. Yet some trend improvement can be seen in continued gains in manufacturing jobs and in the longer workweek. Manufacturers slashed payrolls dramatically in recent years, and some are now finding it difficult to fill orders with existing staff. As manufacturing activity increases, service industries dependent on manufacturing will also be bolstered. Transportation and warehousing employment increased in May as did the workweek in these industries. Thus, the labor market expansion will spread from the goods-producing industries to service-producing industries to consumer industries.” [Sophia Koropeckyj, Moody’s Economy.com]

 

The employment report provided the big news for this past week. At first glance, a gain of 431,000 jobs looked very positive. At second, everyone realized that 411,000 of those jobs were very temporary assignments at the Census Bureau. About 250,000 of those jobs will disappear in June alone.

 

The lower unemployment rate, given the mood among those who have recently sought employment, lost its shine completely as it became clear that fewer people were seeking jobs this past month, eroding the so-called labor force. Fewer people looking for a job means, in the computations, that a larger percentage of the labor force appears to be employed.

 

The Dow Jones Industrial Average (DJIA) plunged on the employment news. As this is written, the DJIA remains about 200 points shy of regaining the 10,000 level. At the same time, interest rates fell dramatically. The 10-year Treasury note, for example, yields a low 3.171% at this writing, and the 30-year fixed-rate mortgage—which tracks the 10-year note yield—is pushing its way below 4.75% for most borrowers. Even the HSH average rate for 30-year mortgages (higher because it includes rates for jumbo loans) has fallen to 5.15%.

 

One of the intriguing questions of the moment, therefore, is just how long we can expect these record low rates to endure. It is apparent that they depend on 1) how much fear and uncertainty remains in the European debt situation—which was recently spiked a bit further by admissions from Hungary that it too is in dire shape—and 2) whether greater confidence in the American economic recovery can be generated. The game rules: If investors are worried about the strength of the American recovery, they (and the Fed) will push rates a bit lower, trying to keep rates low enough to support the recovery and avoid a slowdown; and if problems look worse in Europe, threatening to disrupt global banking and harm the giant marketplace that Europe provides exporters like us, rates fall further. So yes, we could see rates this low for some time, though few of us would venture a guess on where rates will go and when.