Weak Jobs Report Evidence of Fragile Economy; Good for Mortgage Rates

The March jobs reports was very disappointing and, for many, a shock after several months of labor improvements. While signs of an economic recovery have been in the making, the recent weak jobs report is evidence of a still very fragile economy, although the report is good for mortgage rates.

The Bureau of Labor Statistics reported that the economy added 88,000 nonfarm payroll employees for the month of March. Prior gains in jobs had averaged 169,000 per month over the prior 12 months. While most gains were for business and professional services, retail trade employment fell by 24,000. Probably the most disturbing part of this report is that there were no manufacturing jobs added. The number of unemployed individuals is at 11.7 million and the labor force participation rate fell by 0.2% to 63.3%. There is no doubt that the economy remains rocky and with further cuts in labor, through sequestration, the future may not be much better. There are too many people that remain unemployed or have just given up looking. The Great Recession hurt almost everyone and now, as older Americans continue to work after giving up hopes of retiring, there will be less jobs available for the younger workforce or the returning workforce. According to the report, Recent college graduates in the U.S. labor force: data from the Current Population Survey, statistics show that in October 2011, the unemployment rate for 20 to 29 year olds who had graduated from college in 2011 was 12.6 percent. The rate was 13.5 percent for those who recently had earned bachelor's degrees and 8.6 percent for those who recently had earned advanced degrees. Although there has been improvement since the most recent peak in October 2009, the unemployment rates of recent college graduates remained above the rates prior to the 2007--2009 recession.

The jobs report came as a surprise and made investors nervous last week. The result was a rise in MBS that turned out good for mortgage rates which move in the opposite direction of MBS. When mortgage rates fall, homeowners usually make a move to refinance existing loans. Refinancing through the popular HARP program is still available and will be until the end of 2013. There are still so many homeowners who are eligible for HARP; those who have loans that were sold to Fannie Mae or Freddie Mac prior to June 1, 2009. According to the recent FHFA Refinance Report for January 2013, a total of 97,589 mortgages were refinanced through HARP for the month which represented 21% of all refinance transactions for both GSEs. Since the HARP program was first offered in 2009, 2.26 million homeowners have refinanced through the program.

Lower mortgage rates are also good for home buyers, especially during the spring purchasing season. According to Fannie Mae's most recent National Housing Survey, consumers have remained optimistic about housing and the economy, although there were more concerns about personal finances. Approximately 73% of those surveyed believe it is a good time to purchase a home. Those who believe it is a good time to sell a home reached a high of 26% and is double what it was at the same time last year. Despite these opinions, many first time home buyers use FHA mortgages for financing. With changes to the FHA loan program guidelines that took effect on April 1st, some home buyers may no longer qualify. According to the Mortgage Bankers Association's Market Composite Index for the week ending April 5th, FHA mortgage applications dropped by nearly 14%. While FHA does promote homeownership for low to middle income households, it is becoming increasing difficult for this group to attain that position.

High end property buyers are reaping the benefits of low mortgage interest rates. Many of these borrowers are self employed and are not directly affected by the job market. According to the U.S. Mortgage Market Index from Optimal Blue and Mortgage Daily, jumbo loan activity is up and thriving. For the week ending March 29th, jumbo loan business jumped 28% and was 90% higher than the same time a year ago. Representing 8.6% of the latest activity, jumbo loan rate locks rose 6.8% from the same time last year and represented the biggest increase in all mortgage activity. High end property sales have been on the increase since last year, 2012, when $200 billion in jumbo mortgages were originated.

In the end, it doesn't matter what surveys and opinions reveal. There is a still a major need for jobs in the U.S. and without them, a full economic recovery that represents true growth will not happen. Housing may improve because investors are making a large number of low priced purchases for rental purposes, but construction may not rebound because consumers will not be able to afford higher priced homes. Growth in all areas can only be accomplished and sustained by giving people the opportunity to be employed.

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