Firm Labor Market Will Lift Mortgage Rates

Job Market

The June employment report released this morning wasn’t a blockbuster, but it was very solid and above what forecasters expected.

A new 195,000 hires took place during the month, and upward revisions to April (+50,000 jobs) and May (+25,000) put a cap on what has turned out to be a very solid quarter for employment growth. That said, the average of 196,000 new hires for each month of the second quarter was actually a little less than the 207,000 seen in the first quarter.

However, where the first quarter was more erratic — two weak months and a very strong one — the second quarter has been evenly solid throughout.

The nation’s unemployment rate remained at 7.6% for the month, as the size of the nation’s available workforce expanded slightly, from 63.4 percent of the eligible population to 63.5 percent. These figures remain close to all time lows, so there are a lot of people still eligible to work but aren’t actively seeking employment at the moment.

Good news is bad news

The good news on the job front is bad news for mortgage rates. The Federal Reserve has stated that it would like to end QE3 support for mortgages by the time the unemployment rate approaches the 7 percent mark. Although we we moved no closer to that figure in June, the growth in jobs makes it more likely that we will start heading in that direction sooner rather than later. Worse, after a tumultuous week where rates spiked to near multi-year highs last week, mortgage rates had started to settle back down in recent days. Today’s report is likely to push them right back up again.

The mortgage market has been volatile for the past six or seven weeks. The Fed has noted that its moves will be swayed by incoming data, and as important new data about the health of the economy is revealed, the volatility can be expected to continue. We expect this to continue until at least when the Fed actually begins the process of “tapering” its accumulation of Treasuries and Mortgage-Backed Securities. This is presently expected to happen in September.

Between now and then, if you are actively in the market for a mortgage, it would be a good idea to watch for dips in rates and be ready to lock in your deal when they occur.

HSH Associates Financial News Blog

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