Yeah, I get it. And I like it. I’ve personally got a deep fear of blindly following anybody or anything.
But if you want to be a contrarian, you have to have impeccable timing. Otherwise, when you try and stand out in the crowd, you might wind up getting run over by the stampeding masses.
“The Trend Is Your Friend”
The above saying is trader speak for ‘go with the momentum’. The current trend in mortgage rates is up. New economic news hits the wires every day. In recent weeks it has been mixed at best. If you ask me, most accounts of “improving” economy are desperately spun with optimism, but maybe that’s just me being the contrarian again. Call me a skeptic. In the best interpretation, the news has been “less bad”, not “improving”. Big difference.
I fear a turbulent, undulating ground beneath a thin stable layer on the surface.
But enough about me, let’s talk about your mortgage. Are you working on a purchase or refinance transaction? Simply put, I think there is more risk in floating than in locking into tomorrow’s January payroll and unemployment data, aka ‘The Jobs Report’.
Mortgage rates are heavily influenced right now by jobs data, the pace of new job creation being a key indicator of economic growth prospects. The more jobs created, and the lower the unemployment rate, the better the economic outlook, and the higher rates will head. Too few jobs created, and bond markets have fuel to rally, and rates should move lower.
Perspective On The Jobs Report
On Wednesday, ADP released it’s January report. This one is the precursor to the Bureau of Labor Statistics report. It showed 187k new jobs in January. Economists estimate that roughly 125k-150k new people enter the job market each month, as graduates, immigrants, etc. So the 187k new jobs represented about 50k jobs for previously unemployed people. Barely puts a dent in it. They also revised the December number down by 52k jobs. So the net result is just about a break-even. This is not the picture of a recovering economy. Bond markets shrugged it off, and rates rose on the day. I believe there’s a disconnect here, but it will take something more obvious to break the trend.
The Bottom Line
But the bond market is looking for more signs of economic strength, and right now, anything that doesn’t outright refute that view seems to reinforce it. A report that is ambiguous doesn’t rattle the current expectation that we’re slowly recovering.
I see three basic outcomes to the report tomorrow:
- Strong report; rates higher
- Report matches expectations; rates higher on ‘confirmation’ of belief
- Weak report; rates moderately lower
I think it will take a real disaster of a report to disrupt this trend. And all it would do is bring rates back down to the other side of their recent range. It might change the tone, but I doubt it moves the market too far. Alternatively, a mildly strong report could be all it takes to bump rates into then next updraft. The sensitivity is just in that direction.
Of course, I could be totally wrong. But why risk it? Rates are right near their historical lows, money is cheap. Don’t let it slip out of your hands. Play this one safe.
If you feel like you could use some help navigating your upcoming refinance or purchase transaction against the trickle of economic data points, contact me and let me know about it.