The jobs report released each month on the first Friday of that month is always a crucial report to us in the mortgage world. It is an indicator for so many different pieces of the economic puzzle and can have a big impact on mortgage rates. When things are good, companies are hiring, stocks will rally and bonds will suffer pushing rates up. If things are the opposite of that, stocks will fall, bonds will rally and rates will drop. That's the simple explanation. More jobs means more people making money, means higher risk of inflation and that will make rates rise. The opposite is always true.
The reason that release of the information itself is critical and what we consider a "high risk event" is that before the hard data, there are estimates that have been made and those numbers are "baked into" to pricing already. For example, the projections for tomorrow are calling for 155,000 new jobs created. That is already factored into pricing. If the official release tomorrow morning is a number lower than that, then there will be an immediate and fairly sizable swing in the markets because investors had been operating on an assumption that proved wrong. So a number short of expectations and a downward revision to prior months would push rates downward as bonds would see a flight to safety from investors. A number higher, and you'll see rates rise as the stock market sees money flowing in.
Now to why tomorrow is maybe even bigger than recent months. See the above chart....we're already trading up at layers of resistance that will make it difficult for bonds to go up much more. (Or to say it another way, it will make it difficult for rates to drop much more.) We're at the top of the range and at all time highs for Mortgage Backed Securities. The fact that we're at the top of the range also means that a number better than expected could potentially see two factors go to work. One is as explained above and the normal flow of money out of bonds and into stocks. This will cause rates to rise of course. The second factor that comes with being at the top of the range is that markets may tend to overreact and what would be a "leveling out" or cooling off period for bonds could multiply the effect of the positive report meaning that a .25% jump in rates might end up being a full .5% or more jump in rates. I'm not saying that will happen, I'm just saying it wouldn't shock me if it did.
So tomorrows report means basically this: the payoff if things are worse MIGHT be an additional .125% drop in rates but most likely it would be rates remaining unchanged since the move further is already difficult thanks to that layer of resistance. The penalty if the report exceeds expectations is .25%, .375%, .5% increase in rates so the risk is substantial and the reward is minimal.
So here is what I'm doing with my borrowers.....We've been floating all day to see what gains we can get. After the close of the market, I am going to lock all loans that I have closing over the next 30 days because there is no point in putting my borrowers in a position of unnecessary risk. Longer term, prices could improve but there is no guarantee until we bust through this resistance.
Bottom line; whether you are purchasing or refinancing, locking a rate today is given unless you are 60 days or more away from your scheduled closing. Call and get those apps in ASAP so you can shield yourself from a potentially crazy day tomorrow that will certainly cause a lot of unnecessary stress if you float into tomorrow morning.
This is EXACTLY why you shop for the right Loan Officer, or better yet, the right Certified Mortgage Planner and you NEVER shop on rate......get a quote today and see if it holds up by mid morning tomorrow. My guess is that it won't.
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