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SWEET & SOUR TAKEAWAY: ADP AND MORTGAGE DEMAND

Wednesday gave investors two data snacks to chew on, one sweet and the other sour.

The sweet: the private sector added 109,000 jobs in April, or 10,000 more than economists projected, according to payrolls processor ADP USADP=ECI.

As a reminder, ADP has a less than robust track record as a predictor of official government data. The number is 45.3% stronger than the private payrolls increase of 75,000 that analysts expect from the Labor Department's more comprehensive jobs report, which is due on Friday.

But Tuesday's JOLTS report showed a spike in hiring in the prior month, suggesting employers could be easing out of low-hire/low-fire mode.

"The uptick in private payroll gains from the ADP employment report not only suggests a stable labor market, but one that was potentially warming despite the outbreak of the war in Iran," says Matthew Martin, senior economist at Oxford Economics. "Today’s report should assure Federal Reserve officials that the labor market is likely to weather this storm and keep policy steady until they are confident inflation is headed towards target."

The graphic below tracks ADP's NEI and measures its accuracy (or lack thereof) relative to Labor Department data.

Now for the sour bit. Last week it got more expensive to finance home loans, resulting in dampened demand.

The average 30-year fixed contract rate USMG=ECI heated up by 8 basis points to settle at 6.45%.

That prompted a 3.7% slump in demand for loans to purchase homes USMGPI=ECI - among the housing market's most forward-looking indicators. Refi applications USMGR=ECI, which accounted for a 42.0% share of the mortgage pie, shrank by 5.0%.

Combined, home loan demand dropped by 4.4% last week.

"The ongoing conflict in the Middle East continues to push rates higher," says Joel Kan, deputy chief economist at MBA. "Additionally, the average loan size on a purchase application increased to $467,300, the highest in the survey’s history dating back to 1990."

"This increase could indicate that potential first-time buyers, and buyers looking for homes at lower price points, might be the most hesitant to move forward given the economic uncertainty and higher rates," Kan adds.

The 30-year fixed rate currently sits 39 basis points below where it was during the same week a year ago.

Over that same period, purchase applications have grown by 5.1%, while refi demand has increased 28.8%.

While purchase applications are relatively forward-looking, it's still last week's data.

Look to housing stocks to see where investors expect the sector to be six months to a year down the road.

And that road has been bumpy this year.

Housing-related indexes - the S&P 1500 Homebuilding Index .SPCOMHOME and the PHLX Housing Sector Index .HGX - handily outperformed the broader market in the first two months of the year. That advantage evaporated in March when the U.S.-Israeli war on Iran pushed interest rates higher, taking mortgage rates with them.

And now, over the past two weeks, the indexes have begun to underperform.

Year-to-date, the SPCOMHOME and the HGX are now down 3.6% and 0.7%, respectively. The S&P 500 .SPX has climbed 6.0% over the same time period.

(Stephen Culp)

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