|10 year government bond yield||1.34%|
|30 year fixed rate mortgage||3.07%|
Stocks are lower this morning after the European Central Bank said it would start reducing asset purchases. Bonds and MBS are flat.
Initial Jobless Claims came in at 310k which was a touch below expectations. Separately, the JOLTS report showed 10.9 million job openings, which is a record. Check out the chart below of the JOLTs data going back 20 years:
I suspect the market response to the huge number of unfilled jobs will be to increase investment in labor-saving technology. If the issue simply that expanded government benefits are driving the labor shortage, then it should reverse pretty rapidly once the extended benefits expire. If the government is keeping these expanded benefits in hopes of driving up wages, I suspect it will backfire, and any bump in wages will be temporary. The fatal flaw in that analysis is that workers don’t just compete with each other – they compete with technology which only gets better and cheaper.
Mortgage credit availability expanded last month, according to the MBA. “This expansion was heavily driven by the addition of refinance loan programs at a time when the 30-year fixed rate has been above 3% for the past month, and refinance activity has trended lower,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Of note, jumbo credit availability increased 9% to its highest level since March 2020, as more non-QM jumbo and agency-eligible high balance loan programs were offered. In the conforming space, more lenders offered GSE refinance programs catered for lower-income borrowers to help reduce their rates and payments. There was also a slight expansion in government credit, as more investors offered streamline refinance options for FHA and VA loans.”
Mortgage applications fell 1.9% last week as purchases declined 0.2% and refis fell 3%. “Mortgage application volume fell last week to its lowest level since mid-July, as mortgage rates have stayed just above 3% for several weeks. Refinance volume has been moderating, while purchase volume continues to be lower than expected given the lack of homes on the market,” said Mike Fratantoni, MBA’s Senior Vice President and Chief Economist. “Economic data has sent mixed signals, with slower job growth but a further drop in the unemployment rate in August. We expect that further improvements will lead to a tapering of Fed MBS purchases by the end of the year, which should put some upward pressure on mortgage rates.”
Economic growth “downshifted slightly” in August according to the latest Fed Beige Book. The decline was primarily due to decreased dining and travel, however supply chain shortages also played a part. The report discusses the labor market:
All Districts continued to report rising employment overall, though the characterization of the pace of job creation ranged from slight to strong. Demand for workers continued to strengthen, but all Districts noted extensive labor shortages that were constraining employment and, in many cases, impeding business activity. Contributing to these shortages were increased turnover, early retirements (especially in health care), childcare needs, challenges in negotiating job offers, and enhanced unemployment benefits. Some Districts noted that return-to-work schedules were pushed back due to the increase in the Delta variant. With persistent and extensive labor shortages, a number of Districts reported an acceleration in wages, and most characterized wage growth as strong—including all of the midwestern and western regions. Several Districts noted particularly brisk wage gains among lower-wage workers. Employers were reported to be using more frequent raises, bonuses, training, and flexible work arrangements to attract and retain workers.
Rapid home price appreciation has led to an increase in tappable home equity to $9.1 trillion, according to Black Knight. The average mortgage holder has $173k in tappable equity, an increase of $20,000 from the first quarter. What does this mean for originators? Debt consolidation refinances are a powerful tool for people with high interest credit card debt. Loan officers should be pitching these to their borrowers.