Talking about the latest employment report, CMBS delinquencies, mortgage rates, down payments and much more!
In the week ending April 1, the advance figure for seasonally adjusted initial claims was 234,000, a decrease of 25,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 258,000 to 259,000. The 4-week moving average was 250,000, a decrease of 4,500 from the previous week’s revised average. The previous week’s average was revised up by 250 from 254,250 to 254,500.
Sounds good but…
From the BLS:
The unemployment rate declined to 4.5 percent in March, and total nonfarm payroll employment edged up by 98,000. Employment increased in professional and business services and in mining, while retail trade lost jobs.
The labor force participation rate remained at 63.0 percent in March, and the employment-population ratio, at 60.1 percent, changed little. The employment-population ratio has edged up over the year, while the labor force participation rate has shown no clear trend.
Very very weak! This just barely beats the number of jobs that must be created to keep up with population growth. This was far below what many of the “experts” had forecast.
There is some good news though. Average hourly earnings increased 0.2% MoM and 2.7% YoY. As I have repeatedly said, we must have strong income growth for ALL Americans for the economy to recover fully.
Also, the unemployment rate decreasing was good news but I would like to see the labor force participation rate strengthen. Another positive is that the number of people working part-time for economic reasons decreased.
The number I watch the most, U-6, decreased to 8.9%. U-6 includes discouraged workers who have quit looking for a job and part-time workers looking for full-time employment.
We heard the infamous “bad weather” excuse for the weak report.
Check out the charts:
The Trepp CMBS Delinquency Rate ascended once again in March, as another slew of loans turned newlydelinquent last month. The delinquency rate for US commercial real estate loans in CMBS is now 5.37%,an increase of six basis points from February. The reading has consistently climbed over the past year as loans from 2006 and 2007 have reached their maturity dates and have not been paid off via refinancing. The rate has moved higher in 11 of the last 13 months.
Not good. Especially with the problems in retail. In today’s big employment report, the retail industry lost 29,700 jobs. And this is after a 30,900 loss in February. The decline in retail employment is largely due to the huge number of store closures. According to a report in Bloomberg, we could see over 8600 stores close in 2017.
Labor market strengthened further in January and February and that real gross domestic product (GDP) was continuing to expand in the first quarter, albeit at a slower pace than in the fourth quarter, with some of the slowing likely reflecting transitory factors. The 12-month change in consumer prices moved up in recent months and was close to the Committee’s longer-run objective of 2 percent; excluding food and energy prices, inflation was little changed and continued to run somewhat below 2 percent.
Recent information on housing activity suggested that residential investment increased at a solid pace early in the year. Starts for both new single-family homes and multifamily units strengthened in the fourth quarter and remained near those levels in January. Issuance of building permits for new single-family homes–which tends to be a reliable indicator of the underlying trend in construction–also moved up in the fourth quarter and remained near that level in January. Sales of existing homes rose in January, while new home sales maintained their fourth-quarter pace.
Total U.S. consumer prices, as measured by the PCE price index, increased a little less than 2 percent over the 12 months ending in January. Core PCE price inflation, which excludes changes in food and energy prices, was 1-3/4 percent over those same 12 months, held down in part by decreases in the prices of nonenergy imports over part of this period. Over the 12 months ending in February, total consumer prices as measured by the consumer price index (CPI) rose 2-3/4 percent, while core CPI inflation was 2-1/4 percent.
Mortgage credit continued to be readily available for households with strong credit scores and documented incomes. Despite the increase in Treasury yields, the interest rate on 30-year fixed-rate mortgages was little changed over the intermeeting period.
In the U.S. economic projection prepared by the staff for the March FOMC meeting, the near-term forecast for real GDP growth was a little weaker, on net, than in the previous projection. Real GDP was expected to expand at a slower rate in the first quarter than in the fourth quarter, reflecting some data for January that were judged to be transitorily weak, but growth was projected to move back up in the second quarter.
The unemployment rate was forecast to edge down gradually through the end of 2019 and to run below the staff’s estimate of its longer-run natural rate; the path for the unemployment rate was little changed from the previous projection.
Information received over the intermeeting period indicated that the labor market had continued to strengthen and that economic activity had continued to expand at a moderate pace. Job gains had remained solid and the unemployment rate was little changed in recent months. Household spending had continued to rise moderately while business fixed investment appeared to have firmed somewhat. Inflation had increased in recent quarters and moved close to the Committee’s 2 percent longer-run objective; excluding energy and food prices, inflation was little changed and had continued to run somewhat below 2 percent. Market-based measures of inflation compensation had remained low; survey-based measures of inflation compensation were little changed on balance.
Members continued to expect that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labor market conditions would strengthen somewhat further.
After assessing current conditions and the outlook for economic activity, the labor market, and inflation, all but one member agreed to raise the target range for the federal funds rate to 3/4 to 1 percent.
Nothing too surprising and I am more concerned about the situation in Syria messing up the economy or causing some kind of crazy terrorist attack.
Rail Traffic for March and the Week Ending April 1, 2017
AAR Senior Vice President of Policy and Economics John T. Gray:
Railroading is not for the faint of heart, as markets are continually changing and railroads have to adapt to changing circumstances. Despite recent increases, in absolute terms rail coal volumes are much lower than they were even a few years ago, and rail crude oil volumes are roughly half what they were a couple of years ago. On the other hand, this was the best March ever for carloads of crushed stone, sand, and gravel, and it was the best March for grain since 2008.
Check out the numbers from AAR:
Total U.S. carload traffic for the first three months of 2017 was up 5.7% from the same period last year; and intermodal units were up 1.4% from last year.
Total combined U.S. traffic for the first 13 weeks of 2017 was up 3.5% compared to last year.
Total U.S. weekly rail traffic was up 7.2% compared with the same week last year.
Total carloads for the week ending April 1 were up 9.1% compared with the same week in 2016, while U.S. weekly intermodal volume was up 5.5% compared to 2016.
Good report but as Gray points out, markets are constantly changing.
The biggest banks are still as dangerous as they were before the last crisis, even as they push for less regulation.
The big six banks U.S. banks are JP Morgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs, and Morgan Stanley. Despite their belly-aching about heinous Dodd-Frank Act regulations cramping their betting style, they have all done damn good recently.
Since the 2008 financial crisis, the big six banks’ total assets have increased by 21 percent. The big four by 25 percent.
The biggest banks are still the ones most at risk, and most threatening to anyone with money in the stock market. Cracks have started popping up that make it clear to us that the next financial crisis is just around the corner.
Remember, those that forget the past are doomed to repeat it…
More than seven years after the Great Recession officially ended, there is yet more depressing research that at least half of Americans are vulnerable to financial disaster.
Some 50% of people is woefully unprepared for a financial emergency, new research finds. Nearly 1 in 5 (19%) Americans have nothing set aside to cover an unexpected emergency, while nearly 1 in 3 (31%) Americans don’t have at least $500 set aside to cover an unexpected emergency expense, according to a survey released Tuesday by HomeServe USA, a home repair service. A separate survey released Monday by insurance company MetLife found that 49% of employees are “concerned, anxious or fearful about their current financial well-being.”
If lots of people are living paycheck to paycheck, then they certainly are not going to be buying a home anytime soon.
Consumer Delinquencies Mixed in Fourth Quarter
The delinquency picture was mixed in last year’s fourth quarter, as delinquencies in closed-end loans (like auto loans) rose while delinquencies in open-end loans (like credit cards) fell, according to results from the American Bankers Association’s Consumer Credit Delinquency Bulletin.
Among the 11 individual loan categories, delinquencies rose in all eight closed-end categories, but fell in all three open-end categories compared to the previous quarter. The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, rose 10 basis points to 1.51 percent of all accounts – remaining well below the 15-year average of 2.19 percent.
- Home equity line of credit delinquencies fell 10 basis points to 1.06% of all accounts and are now below their 15-year average of 1.15%
- Home equity loan delinquencies edged up 2 basis points to 2.61% of all accounts, holding under their 15-year average of 2.85%
- Property improvement loan delinquencies rose 4 basis points to 0.98% of all accounts
James Chessen, ABA’s chief economist said:
As the housing market continues to improve, so do home-related delinquencies. With home prices on the rise and borrowers better positioned to honor their debts, we expect that home-related delinquencies will continue their gradual downward trajectory.
Job growth across a wide swath of industries – from services to manufacturing to high tech – is the key to maintaining low and stable delinquency rates. Lower taxes and infrastructure spending would add fuel to the economic expansion, pushing wages higher and helping to ease consumers’ financial worries.
Chessen’s comments came from before today’s bad jobs report. However, this is still a very good report and not to be ignored.
Mortgage Rates Move Lower
- 30-year fixed-rate mortgages averaged 4.10% with an average 0.5 point
- This is down from last week when it averaged 4.14%
- A year ago at this time, 30-year fixed-rate mortgages averaged 3.59%
- 15-year fixed-rate mortgages averaged 3.36% with an average 0.5 point
- This is down from last week when it averaged 3.39%
- A year ago at this time, 15-year fixed-rate mortgages averaged 2.88%
Sean Becketti, chief economist, Freddie Mac said:
The 10-year Treasury yield was relatively unchanged this week, while the 30-year mortgage rate fell 4 basis points to 4.1 percent. After three straight weeks of declines, the 30-year mortgage rate is now barely above the 2017 low. Next week’s survey rate may be determined by Friday’s employment report and whether or not it can sustain the strength from earlier this year.
Obviously, today’s craptacular employment report and the situation in Syria will have an effect on mortgage rates. If you have not locked, you may want to touch base with your lender to see what they suggest.
The Conference Board Measure of CEO Confidence™, which had rebounded sharply in the fourth quarter of 2016, increased again in the first quarter of 2017. The Measure now reads 68, up from 65 in the final quarter of 2016 (a reading of more than 50 points reflects more positive than negative responses).
Lynn Franco, Director of Economic Indicators at The Conference Board said:
CEO Confidence improved further in early 2017, propelling the measure to its highest reading in nearly 13 years. CEOs were considerably more optimistic about short-term growth prospects in the U.S., and to a lesser degree, about prospects in other mature and emerging markets. Hiring plans have picked up compared to last year, with nearly two-thirds of CEOs anticipating an increase in employment levels in their industry. However, 40 percent say finding qualified workers is a major obstacle to hiring.
I wonder what these CEOs are thinking based on the stuff that has happened since this survey was taken?
Among all buyers whose transaction closed in February 2017, 62 percent of those who obtained a mortgage made a downpayment of less than 20 percent. Among first-time homebuyers who obtained a mortgage and whose transactions closed in December 2016–February 2017, 80 percent made a downpayment of less than 20 percent.
Among first-time homebuyers, 65 percent put down a zero to six percent downpayment, a decrease from the 74 percent share in June 2009 when NAR started collecting this information in the RCI Survey.
This is interesting as you often hear that many buyers think they have to put 20% down when getting a mortgage. How many people could buy a home if they knew the truth about down payments?
A study by Ipsos found out that that many consumers are slightly unclear about what exactly is needed to get a home loan today. Let me clear up 2 misguided beliefs about down payments:
How Much Down Payment You Need
The study showed that people overestimate the amount of down payment that is required to get a mortgage. According to the survey, 40% believe a 20% down payment is always needed. The truth is that there are lots of mortgages that only need a 3% down payment. There are even some that require less!
A lot of renters could actually be capable of buying a home with the new mortgages that require less money down.
What Credit Score is Required to Buy a Home
The study also showed that 62% thought they must have excellent credit to buy a home. 43% think that a “good credit score” is over 780. Some of you may be surprised to learn the average FICO® scores of approved conventional and FHA home loans are far lower.
The average conventional mortgage closed in February had a credit score of 752. FHA home loans closed with an average credit score of 686. The average for all mortgages closed in February was 720. Check out the chart below that shows the FICO® Scores for all loans approved in February 2017:
If you are thinking about buying a home in the Anderson SC area and have any questions, shoot me an email.
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