Employment Report Analysis
At first blush, it
appeared that the jobs report was disappointing. The addition of 142,000 jobs
in August was much less than the average of over two hundred thousand for the
previous six months. Yet, the day of the report, the stock market reacted
positively and interest rates did not fall as expected. What could have caused
this "adverse" reaction? To us there are three possibilities. First,
the same day as the jobs report, a cease fire was signed in Ukraine. As we have
said previously, the world news is over-shadowing our domestic economic news
this summer. If the truce holds, this is a positive indicator for the stock
market but not necessarily positive for the continuation of lower interest
rates.
Secondly, the markets
may be betting that the lower number of jobs added might be a one-time
occurrence. The jobs numbers are often revised in future months and the markets
are not likely to get upset over one report. Now, if we get two or three
reports below an average of 150,000 jobs each month, this could be worrisome to
the markets. Looking at other indicators such as first time claims for
unemployment and the ADP private payroll report, there was no indication that
the job creation machine slowed down last month.
Finally, even if
the production of jobs does slow down, the markets may not be too upset. Slower
job growth might cause the Federal Reserve Board to keep short-term interest
rates lower for a longer period of time and nothing would boost the stock
market more than the prospect for a continuation of lower rates. This factor
would apply if the production of new jobs does not slow any further from here.
As we indicated last week, it is a good sign with regard to how far we have
come in our recovery for the markets to now consider over 140,000 jobs created
in a month a poor performance. Which of these factors is correct? There
could be a bit of truth in each theory. You can bet on the fact that the
Federal Reserve Board's Federal Open Market Committee will be considering these
possibilities as they meet this week.
At least 2.5 million borrowers will face an average increase of
$250 per month on their monthly mortgage payment due to the imminent reset in
home equity lines of credit over the next three years, according to Black
Knight Financial Services’ Mortgage Monitor Report. However, depending
upon borrower behavior between now and the time of the reset, payment increases
could change, Kostya Gradushy, Black Knight’s manager of research and
analytics, said. Borrowers whose HELOCs will reset over the next three years
are utilizing just under 60% of their available credit. If these borrowers
utilize more of their credit, they could face even more payment shock as the monthly
increase would rise above the $250. And the news is not much better for the
borrowers whose payments are not likely to reset until 2019. These borrowers
are exhibiting even lower utilization ratios — about 40% of their available
credit. Once reset, they will likely face an average monthly increase of $200.
"Should their drawing pattern match that of older vintages, we could be
looking at a significantly higher risk of ‘payment shock’ for this segment,”
Gradushy said. Source:
HousingWire
Builder confidence
in the market for new, single-family homes rose two points in August, bringing
the National Association of Home Builders/Wells Fargo Housing Market Index to
its highest score since the beginning of 2014. NAHB surveys builders across the
country and asks them to rate their sales expectations for the next six months,
their confidence in current single-family home sales, and their perceptions of
prospective buyer traffic. “Each of the three components of the HMI registered
consecutive gains for the past three months, which is a positive sign that
builder confidence appears to be firming,” NAHB chief economist David Crowe
said in a statement. Builder confidence in current sales conditions rose to a
score of 58, while expectations for future sales rose to 65. The third index,
which gauges expectations for prospective buyer traffic, hit 42. The overall
increase in the HMI index can be attributed to factors including sustained job
growth, historically low interest rates, and affordable home prices, Crowe
said. Source: NAHB
Recently, the
Federal Housing Administration announced that they are halting the policy of
allowing lenders to collect interest to the end of the month when the
homeowner's FHA mortgage is paid off. Beginning in January of 2015, lenders
will be able to collect interest until the day the loan is paid off. However,
it should be noted that for the millions of homeowners who currently have home
loans insured through FHA, there is no change in policy. The new policy affects
only those who obtain new FHA loans in January of 2015. What does this mean for
present homeowners? It is important to time refinances and sales of houses to
allow time to get the payoff to the present lender before the end of the month.
Otherwise, the homeowner could owe a full month of extra interest. The worst
time to close on a real estate transaction is the last day of the month because
all service providers are especially busy on that day -- from the lender to the
settlement company. This rule is more on target for those who have FHA
loans because payoffs do not go to the lender the same day. On refinances, the
homeowner should close their new loan 10 days before the end of the month
because the present loan is not paid off until a three day "right of
rescission" expires. On a purchase, allow at least one full week before
the end of the month to make sure you don't get stuck paying almost a full
extra monthly payment on the present loan being paid off. Note:
If you are considering moving up or refinancing your present home and are not
sure whether you presently have an FHA loan, we would be happy to help you
determine this as well as assisting you with your new transaction.
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