Job Loss Report – The Rest of the Story

While many of my previous blog’s use of attempted humor to prove a point have generated some fun conversations, my goal is always to share relevant information that is hopefully found useful by many of our franchisees and sales associates.  After reviewing Friday’s jobless numbers, providing some direct factual information that can help shed some light for all of us seemed more appropriate.

For those of us that missed it, Friday’s release of Non-Farm Payrolls (aka ‘Employment Situation Report’…..better known as the ‘Jobs Report’) shared that 85,000 jobs were lost in December; much worse than anticipated.  85,000 is a very big number and made me sit and consider what- if anything- does this mean for us in residential real estate?  Having spent a large portion of my career in settlement services (mortgage, title, etc.), I am always very curious about market forces and the associated impact on lending practices, mortgage rates and real estate sales volumes.  I have also always believed that while originating loans should be left to a professional loan officer, we, in residential real estate, should remain aware of what is happening to be of better assistance to our buyers (especially if they are first time buyers) and sellers.

So, I spent Saturday morning reviewing what else the report and other business periodicals shared to get a better picture, and found some other interesting factoids.

  • The official unemployment rate was unchanged at 10.0%.  Most economists expected an uptick to 10.1% – so this was better than expected.
  • The average work week was unchanged at 33.2 hours and the hourly earnings increased 0.2%  – both as expected.  If the average work week increases and so do the average hourly earnings, it would indicate that the average working person is making more money.
  • The Bureau of Labor Statistics announced that the jobs report for November was revised for the better – from 11,000 job losses to 4,000 jobs created! (see Bloomberg News:
  • The October Non Farm Payroll loss number was cut from a loss of 190,000 to a loss of 111,000 – an improvement of 79,000 jobs.

Wow, I wish those numbers were in the newspaper articles I read!

With a better picture of the total macro economic climate, I turned my interests to mortgages and what the jobs report headlines have done to rates. As a reminder, mortgage rates are based upon the trading of Mortgage Backed Securities (MBS) and not the 10 year Treasury Note, as many people suspect.  When MBS prices move lower, lenders are forced to raise their rates to customers.  When MBS prices move higher, lenders have the ability to offer lower mortgage rates because they can sell those loans in their pipeline of loans for a higher price.  Think of it as a see-saw.  High MBS prices mean low rates and vice versa.

What did Friday’s report of the 85,000 job losses do?  MBS prices began to fall.  And as we stated earlier, when prices fall, rates rise.  Many of the larger mortgage company websites demonstrated slight increases across all products.  A few of the mortgage companies that I spoke with stated that their 30 year fixed conventional mortgage rates actually remained in the 5% – 5.25% range – but the discount points required increased.  For me, these are still really great rates, and much better than the 7% rates of just a few years back!

So, while the numbers shared on Friday were troubling at first glance, remaining focused on the details provides a more complete picture, a bit of solace, and information that continues to differentiate you from other sales associates in your area.

In the months ahead, I am confident that we will read and hear many ups and downs as we begin our economic recovery.  As this happens, we will continue to provide you a complete picture to share with your sellers and buyers.

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