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June 9th, 2011

Higher mortgage rates would be better

by Peter Miller


Sold sign resizedThe most recent jobs report has upset Wall Street and caused stock prices to tumble. But was the higher unemployment rate anything but unexpected?

If you keep your eye on the mortgage and real estate markets, then the employment news seemed both logical and predictable. There’s little chance of increasing home sales to any great degree when millions of Americans remain unemployed or underemployed.

In the dry language of the U.S. Bureau of Labor Statistics (emphasis added):

Nonfarm payroll employment changed little (+54,000) in May, and the unemployment rate was essentially unchanged at 9.1 percent. Job gains continued in professional and business services, health care, and mining. Employment levels in other major private-sector industries were little changed, and local government employment continued to decline.

If the unemployment rate has coasted somewhere between lousy and awful, then “changed little” and “little changed” are not expressions which suggest much growth or progress. Add in the fact that local government employment is falling–jobs we can’t ship overseas–and it’s hardly surprising that the stock market has slipped from recent highs.

Refi demand is down

According to Mike Fratantoni, Vice President of Research and Economics with the Mortgage Bankers Association, both mortgage rates and refinance applications are way down:

Interest rates fell last week as incoming economic data was weaker than anticipated. Despite this drop in rates, the number of refinance applications fell. In fact, the last time mortgage rates were this low, refinance volume was more than twenty percent higher. It is likely that many borrowers still cannot qualify to refinance given the lack of equity in their homes.

Mortgage rates are low, but no one’s buying

There are terrific mortgage offers out there, but prospective borrowers are just not taking the bait. Mr. Fratantoni blames the anemic refinance demand on a lack of equity (certainly a valid point).

But I’m of the strong opinion that people simply don’t buy big ticket items in an iffy economy, and most people measure the economy not by some academic standard or government index, but by the size of their paycheck.

The unemployment rate is higher than 9.1 percent

If you look at the BLS job figures you can see that they are substantially worse than the headlines read. The unemployment rate, in human terms, is far greater than 9.1 percent.

We have 153.7 million people in the labor force. Of this number, 13.9 million don’t have jobs. That’s how the government gets the 9.1 percent unemployment rate.

However, we also have 2.2 million people who were “marginally attached to the labor force.”

Add the 13.9 million definitely unemployed with the 2.2 million not counted as unemployed and we get a total of 16.1 million people, and a rational unemployment rate of 10.47 percent.

Don’t forget about part-time workers

There are also people who fall somewhere between employed and not employed. The government counted 8.5 million “involuntary part-time workers” in May–individuals who the government said “were working part time because their hours had been cut back or because they were unable to find a full-time job.”

Translation: If you’re lucky enough to have a job the odds are overwhelming that you haven’t asked for a raise lately, more hours or better benefits.

Home sales down…no surprise there

In such an environment, it’s hardly a surprise that April’s existing-home sales were down 12.9 percent from 2010.

According to the latest figures from HSH.com, 30-year fixed-rate mortgages are coming in below 5 percent.

Today’s mortgage rates are among the best rates in decades, offering an incredible opportunity to refinance and should be providing a huge incentive to purchase.

However, for all those Americans out there with job worries, rock-bottom mortgage rates simply aren’t enough.

The uncertainty of this nation’s job market is a problem for all of us—not just the unemployed–because more home sales would surely bolster the economy and everyone in it. As we know, a growing economy usually means higher mortgage rates. But that’s OK, given that decades-low mortgage rates have only been able to do so much.

Peter G. Miller is syndicated to more than 100 newspapers and operates the real estate news site, OurBroker.com

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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.

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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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