Home Prices on the rise!!!

Thankfully both the Republican and Democratic Conventions are over.  It is bad enough to have to listen to both sides attack each other in advertisements and the media every single day.  For the last 2 weeks we have had to endure the brutal ramblings of speaker, after speaker, after speaker go on about how their presidential nominee is the right choice.  I am not making a political argument for either side here.  I am just glad that the conventions are over because all they have done is made the political battle between sides even nastier.

The August unemployment report that everyone has been waiting for was released this morning at 8:30AM EST.  The national unemployment rate has dropped from 8.3% down to 8.1%.  Although the drop in the employment rate is greater than most experts expected, the underlying numbers are far from positive.

The labor market added only 96,000 jobs whereas the expected range was in the area of 125,000.  In addition, job growth for July was also revised down from 163,000 to 141,000.  All of this data points to ongoing weakness in employment and an increases the likely hood that the Fed will take launch another round of stimulus.  Some experts believe the announcement will come as soon as next week as the Fed is having their FOMC meeting.

What a difference a day makes.  On Thursday the stock market rallied on three pieces of significant news.  The first is that European Central Bank announced a massive bond buying program.  Without going crazy with details, simply put, this new program places some control on the demand for bonds which means that the European government can lower the cost of borrowing for all of the governments in the Euro zone.  If the various governments can borrow money at lower interest rates, the risk of default, which is now much lower. 

The second report on Thursday was ADP’s employment report which came out with a much higher estimate of job growth than anyone expected.  ADP released an estimate for job creation in the amount of 201,000. (I guess they missed the mark big time with this report based upon the actual numbers released on Friday)

The last piece of news that drove the market to rise 245 points on Thursday is the first time jobless claims report showing a larger drop down to 365,000.  This is the lowest number we have seen in the last 4 weeks.

Outside of Thursday’s market moving reports, investors remained on the sidelines in anticipation of Friday’s national employment report.  As mentioned before, the employment report for August came in at 8.1% which normally would be considered a boost for the President.  However, the only reason the rate dropped is because more people dropped out of the job search market, not because the jobs market improved.

The Mortgage Bankers Association reported on Wednesday that applications for both purchases and refinances have declined.  The declines are relatively small in that purchase and refinances declined .8% and 3% respectively.  With interest rates off of their record lows, it appears that borrowers, especially homebuyers are going to continue to remain on the sidelines until they get a better read on the future of interest rates and the labor market.

It is likely that if the Fed launches another round of stimulus next week, the stock market will rally ultimately driving up interest rates in the short term.  Remember when the stock market does well, interest rates usually tend to rise.

JJ Mack