3 things you should know about unemployment and mortgage rates

October 15th, 2012

Mortgage rates have been falling for nearly seven years now, and the Federal Reserve recently renewed its commitment to driving rates lower, so why worry about higher rates? Well, in the world of finance, sometimes good news is bad news. So when a recent report suggested the job market was improving, it was also a signal not to get complacent about low mortgage rates.

On October 5, the Bureau of Labor Statistics announced that unemployment had dropped to 7.8 percent. This is significant because it is comfortably below the Fed's forecast range from the beginning of the year, which was 8.2 to 8.5 percent.

The Fed has cited lowering unemployment as a leading reason for its aggressive policy toward lowering interest rates. If unemployment has already fallen below the Fed's forecast, it may remove some of the impetus behind its market intervention to keep rates low.

Unemployment has been a stubborn problem, so the Fed won't be quick to abandon its low interest rate programs. Also, it could decide that it's simply getting a jump on next year, for which it has a lower unemployment forecast. However, if inflation becomes troublesome, falling unemployment would give the Fed some leeway to de-emphasize stimulus at the expense of fighting inflation -- and that means higher interest rates.

3 things you should know about this situation:

  1. Implications for home owners. If you have been waiting to refinance, consult a refinancing calculator now. If you are in position to save money, it could cost you to wait.
  2. Implications for home buyers. While refinancing home owners have to worry about rising rates, would-be buyers have to worry about two variables in their mortgage calculators which could push their payments higher -- mortgage rates and home prices. An economic recovery spurred by an improving jobs market could send both higher.
  3. What to watch for next. Keep your eye on unemployment and inflation numbers. If unemployment is falling and inflation starts rising, it would put more weight behind reversing the trend towards lower mortgage rates.

No matter what your situation, the important thing to remember is that financial conditions run in cycles. Just when people get used to falling mortgage rates as "the new normal," they may find themselves having to deal with rising rates.

Posted By :

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

Why the GDP announcement already seems like old news

November 13th, 2013

Stronger GDP growth in the third quarter shouldn't have enough impact to change your mortgage plans....  Read More

A second bite at the refinancing apple

November 06th, 2013

With housing prices continuing to rise while mortgage rates fall, new refinancing opportunities are being created...  Read More

Poor jobs report dampens economy, reveals silver lining for borrowers

October 30th, 2013

Discouraging economic news has a silver lining for mortgage shoppers, in the form of sharply lower rates....  Read More

Budget deal leaves mortgage rates stable -- for now

October 23rd, 2013

The budget deal removes one potential disruption from the mortgage market, but don't expect rates to stay stable forever....  Read More

0 Responses to "3 things you should know about unemployment and mortgage rates"

No Comments

Leave a Comment