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January 7th, 2011

Will the jobs report cause mortgage rates to fall?



int rate QMark It’s the first Friday of the month so that means the Labor Department has released their jobs report from the previous month. Even though December registered an increase of 103,000 private-sector jobs last month, it wasn’t quite as much as many economists were hoping for. Some good news is that both the November and October numbers have been revised upward by 70,000 jobs.

The unemployment rate fell from 9.8 percent in November to 9.4 percent in December, marking the largest one-month decline since April 1998. There are a couple factors that likely led to the lowest unemployment rate since May 2009; for starters, more individuals may have given up looking for work and so don’t count towards the unemployment rate. Another reason could be that more workers found jobs at companies not included in the government payroll survey, but may have been captured in the ADP report which registered an employment increase of nearly three times what the Labor Department reported.

What does this report mean for mortgage rates?

“If you want to know what will happen to mortgage rates in 2011, watch what happens to the economy,” wrote HSH.com VP Keith Gumbinger in our 2011 Mortgage Market Outlook. What we are witnessing in our economy seems to be a continuing, but not accelerating recovery. The December jobs report is the latest example of that.

“The economy and the outlook for inflation have the most influence over mortgage rates,” said Gumbinger. “If the economy remains soft, it should have a tempering effect on any upward pressure for mortgage rates.”

Does that mean we are expecting a substantial falloff in rates? No. When mortgage rates are at their lowest, it’s usually an indication that things are the bleakest. The recent upswing in mortgage rates at the end of 2010 had a couple of positive forces behind it. In addition to a slow but steady economic recovery, the current post-election environment has fostered some change in sentiment that prospects of growth could improve moving forward.

Of course seasonality and weather conditions also have a way of affecting economic reports like employment. The take away here is that the economy is on a slowly improving pace, but nothing substantial  enough to see mortgage rates move any higher than they have.

-To get the whole week’s worth of economic news and data as it affects mortgage rates, be sure to read our Market Trends Newsletter

Have mortgage rates overshot their mark?

If this were a stronger economic recovery, higher rates would suggest an improving economic outlook. Yet unfortunately, the foundation of our current recovery is still shaky.

It certainly stands to reason that mortgage rates have overshot the mark of where they should be in order to help the economy along. The recent peak of the 30-year fixed-rate mortgage of 5.09 percent back on December 16, 2010 has effectively killed off refinance demand and probably dampened potential home sales, too.

That in itself is reason enough to curb your expectations of a swift recovery and its potential to push rates upward (at least for the time being).

One Response to “Will the jobs report cause mortgage rates to fall?”

  1. Russell Royston Says: April 22nd, 2012 at 7:37 am

    Major thankies for the blog. Cool.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

Our bloggers:

Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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