Private Sector Sees Job Growth:

levels last week. The ADP Private Payroll report continued to show gains in hiring in the private sector. Their monthly gauge came in at 110K which was much better than market expectations of 101K.

In a separate report, the national Unemployment Rate fell from 9.1% to 9.0%.  The total non-farm payroll gains were 80K which was below market expectations. However, the prior period was revised upward significantly.

Bright spots: Professional and business services up 562K in 2011. Hotel and restaurants up 344K this year. Health Care up 313K for the year. Retail Trade up 156K this year. And mining jobs are up 152K during the year.

What’s not doing well? Construction, government, financial services, insurance and real estate. Alas, new homes rose in September after four straight monthly declines.

Obviously, housing demand is very closely tied to employment levels. While employment levels still have a long way to go, there is some improvement which is a positive for housing.

What Happened to Rates Last Week:

Mortgage backed securities (MBS) gained +12 basis points from last Friday to the prior Friday which moved mortgage rates lower. This reversed the recent trend of week after week of higher rates.
We had some decent economic data such as better than expected unemployment levels which would normally drive mortgage rates upward.  But fears and concerns over Greece and the European Union caused investors to pour money into bonds which temporarily pushed mortgage rates downward.
Previously, Germany and France had worked out a package deal with the rest of the EU members to bailout Greece.  But last week, the Prime Minister of Greece stated that he wanted the Greek citizens to have a vote on if they should accept the bailout.  If that did happen, there is no way that the citizens would vote for approval and essentially sink the deal.  
Now, we understand that the Prime Minister of Greece has stated that he will step down and that the new government will approve the deal without a public vote. It is amazing how one little country can impact rates so much.

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Retail Sales Strongest Rate Since February:

Headline Retail Sales for September increased at a rate of 1.1% which more than doubled market forecasts of 0.5%. The Core Retail Sales (this excludes autos) also increased more than expected.  It came in at 0.6% which was three times better than the market forecasts of 0.2%.

This is very important for the housing market because housing demand is very closely tied to consumer confidence. This brings up a very interesting point. Various consumer sentiment and consumer confidence reports have shown a recent dip in their readings. So, consumers are telling the survey takers that they feel less positive about the economy and that they are less willing to spend money. But those reports are based upon surveys.

Retail Sales are based upon real and actual sales. And clearly, consumers are spending more which means their economic outlook is positive and that is always a positive for the housing market.

What Happened to Rates Last Week:

Mortgage backed securities (MBS) lost -75 basis points from last Friday to the prior Friday which moved mortgage rates upward and landed mortgage rates at their highest levels in three weeks.

This was in reaction to a slew of much better than expected U.S. economic data. One of the main reasons that mortgage rates are so low (we hit our historical low on 09/22/11) is due to concern over a perceived weak economic recovery. So, when the market sees data that is better than expected (and even shows economic growth), MBS sell off which causes mortgage rates to rise. We received much better than expected Retail Sales.  MBS also pulled back (higher rates) as the European Union appeared to have some less-negative news. This is important because their is certainly a “flight to safety” premium in all bonds due the concerns over the Eurozone and that has been a major factor in pushing mortgage rates lower. So, the less-negative news hurt mortgage rates.

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