Over the past month, investor concerns surrounding a fiscal funding shortage in Greece were generally left unaddressed by European leaders. While policy makers abroad openly discussed a solution to growing fears that Greece would default on its debt, they never implemented a clear solution to calm the anxieties of the global marketplace. After dealing with countless days of unofficial rumors, traders ran out of patience and decided to take matters into its own hands to force political leaders to come up with a meaningful resolution. This frustration manifested itself via a record one-day point decline in stocks and an almost 30 basis point decline in benchmark Treasury yields. The flight to safety resulted in significant improvements in mortgage rates.

A flight to safety happens when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate money into risk-free government guaranteed U.S Treasury debt to provide a safe-haven AND an investment return.

To remind readers, as benchmark Treasury yields fall, prices of mortgage-backed securities move higher, which allows lenders to offer lower mortgage rates. As Treasury yields rise, mortgage-backed security prices are led lower, which forces lenders to push mortgage rates higher.

While headline political news was the dominant force behind movements in mortgage rates this week, we still had one big hurdle to clear before the weekend: the official U.S. Employment Situation Report

The Employment Situation Report is published once a month by the Bureau of Labor Statistics. This is one of the most influential economic reports available to investors as consumer spending accounts for the majority of our economic growth. Spending is highly dependent on a strong labor market to generate wages for Americans.

We receive four different metrics on the health of the jobs market from this release:

1. Nonfarm Payrolls -  totals the number of jobs lost or created in the prior month. Consensus Forecast: +200,00 jobs vs. +162,000 last month
2. Unemployment Rate – the percentage of able Americans who are out of work. Consensus Forecast: 9.7% vs. 9.7% last month
3. Average Hourly Earnings – shows the monthly change in the hourly wages. Consensus Forecast: +0.1% vs. -0.1% last month
4. Average Work Week – shows the average amount of hours worked weekly. Consensus Forecast: 34.0 hours vs. same as last month

Here are the official results:

1. Nonfarm Payrolls: +290,000 jobs, much better than expected.  Adding to the good news were upward revisions to the February and March reports. March’s numbers were revised higher to +230,000 from an originally reported +162,000 and February was revised from -14,000 to +39,000. These adjustments added 121,000 jobs to payrolls.
   
2. Unemployment Rate:  9.9%, worse than expected.  How did the unemployment rate move higher when we added more jobs?  When people re-enter the jobs market.   Over the past few years, many people stopped trying to find a job because so firms were still firing employees. These discouraged workers were then classified by the BLS as being out of the work force and therefore not counted as "unemployed" by in the survey. Now that our economy is starting to get back on the right path these people are re-entering the work force. When more Americans re-enter the work force than jobs are created, the unemployment rate ticks higher.   Despite the unemployment rate move higher, this does indicate Americans are feeling more optimistic about their job prospects.
   
3. Average Hourly Earning: 0.0%, worse than expected.  Even though our workers are operating at a highly productive level, income is not rising. This constrains consumer spending. This is a negative.
   
4. Average Work Week : 34.1, better than expected.  Despite no change in hourly wages, Americans are working longer hours which will equate to a bigger pay check and more money to spend into the economy.

All in all, this report was a positive for our economy. Normally a better than expected economic release, especially one as influential as the Employment Situation Report, gives stock traders a reason to buy. However the current market environment is far from normal. Instead of rallying, stocks moved lower which led to another flight to safety in the Treasury market. Mortgage-backed security prices did benefit from the rush to buy risk-averse Treasury assets, but the gains seen were not large enough to warrant noticeably better mortgage rates. While consumer borrowing costs are at their best levels of the year, this is another reminder that lender rate sheets do not always keep up with improvements in benchmark Treasury yields.  

Reports from fellow mortgage professionals indicate the par 30 year conventional fixed mortgage rate is firmly in the 4.75% to 5.00% range for well qualified consumers.  To secure a par interest rate on a conventional mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.  You can elect to pay less in closing costs, but you will have to accept a higher interest rate.  No cost loans, where the lender pays your costs for you, should be in the 5.125% to 5.375% range.   No cost loans are great options for home owners who do not plan on keeping their current home for more than 5 years.  If you are keeping your home for longer time period, you should pay the costs and secure the lower interest rate.

With rates holding at the best levels of the year, I advise locking.  I see no significant benefit in floating right now.

Have a great weekend!