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Market Update May 11th

Market Update May 11th
May 11, 2015 wpengine

Despite the fact that mortgage rates have been rising, purchase applications for mortgage loans increased 1.0 percent in the week ending May 1st according to the Mortgage Bankers Association. As much as the increase in rates impacted applications for refinances, which dropped by 8.0 percent, housing experts do not feel that the recent rate rise will have any significant effect on the housing purchase market. Mortgage rates remain very low and there continues to be significant demand for housing. The biggest challenge facing the market at this time is the lack of inventory available for sale in most areas of the country.

Many people have been wondering why interest rates have been increasing as of late even though the Fed has not made any moves in monetary policy. The main reason for the interest rate increase in recent weeks is that in Europe they have been instituting their own form of quantitative easing similar to what the Fed had done for the United States after the 2008 meltdown. This is keeping bond prices very attractive in Europe and investors worldwide are investing in European bonds versus the U.S. In order to attract investors back to the U.S. bond market invariably yields must rise which is being reflected in the bond market and subsequently impacts mortgage rates.

The big news for the week outside of rising rates is what is happening in the employment sector. The labor market continues to improve and first time jobless claims are declining. For the week ending May 1st claims were down to 265,000. This is the lowest reading in almost 15 years.

The ADP Employment Report released on Wednesday painted a little bit of a different picture. This report indicated that there was a less than expected increase in private payrolls for the month of April. ADP reported that only 169,000 jobs were added to the labor force whereas most analysts were expecting the figure to read in the 200,000 range. Additionally, the prior months reading was revised downward by 14,000 to 175,000. Typically investors do not pay much attention to the ADP Report since it has been shown to be far from accurate more often than not.

The Department of Labor April Employment Report came in pretty close to expectations of an adding 223,000 non-farm payroll jobs. The national unemployment rate is 5.4% which is the lowest rate since May of 2008. A huge plus in the report is the increase in construction jobs of 45,000. Early indications on the stock market in reaction to the report is positive.

The question almost immediately being asked by investors and analysts is does this positive employment report put the Fed back on schedule to raise rates in June?

The answer will be known for certain on Wednesday June 17th after the next FOMC Meeting.

  • This week’s potential market moving reports:
    Wednesday 13th – MBA Applications and Retail Sales
    Thursday May14th – First Time Jobless Claims and Producer Price Index
    Friday May 15th – Industrial Production