Mortgage Rates Continue Slow Decline, Jobs Still Needed

September 03rd, 2010

For the eighth week in a row 30-year fixed rates fell. For the third month in a row the economy lost more jobs than it produced. Cause and effect? Absolutely; as jobs continue to be scarce, interest rates will continue to stay low. If you are using mortgage calculators to determine your purchasing power for a new home or to calculate your savings with a refinance mortgage here is a recap of important economic news to assist you with your mortgage plans.

August employment

On Friday the Labor Department released employment figures for August. Overall the economy shed 111,000 jobs, with most of the lost jobs coming from continued declines in public payrolls as part-time census workers continue to be laid off. There was also a loss of over 20,000 jobs in the manufacturing sector.

Key to economic recovery and growth is private sector payrolls where it was reported that a modest 67,000 jobs were added to the private sector in August. While a positive number is always good, to maintain pace with new workers entering the job markets the economy needs to add over 125,000 each month.

August’s employment numbers showing a drop for the third month in a row and relatively stagnant private-sector job growth increases pressure on the Federal Reserve and the politicians in Washington, D.C., to enact policies to stimulate private sector jobs.

The report on Friday came on the heels of Thursday’s release of initial unemployment claims for the week dropping 6,000 from the prior week with 472,000 initial claims being filed.

Federal Reserve Chief Ben Bernanke has stated on numerous occasions that jobs are a key focus of the Fed’s policy. If you have been using the refinance calculator and contemplating a refinance mortgage you can feel somewhat secure that the historically low rates will continue to be available as long as jobs continue to be scarce.

Mortgage data

Despite fixed rate mortgages continue to see lower and lower rates mortgage applications have not kept pace as one would expect. In its Weekly Mortgage Applications Survey for the week ending Aug. 27 the Mortgage Bankers Association reported small gains in total mortgage applications. Total applications increased 2.7 percent for the week with refinance mortgage applications up 2.8 percent and purchase mortgage applications up 1.8 percent.

Commenting on the data, Michael Fratantoni, MBA’s Vice President of Research and Economics, said, “Despite the slight increase in purchase activity in the past week, the continued low level of purchase applications indicates we are unlikely to see an increase in new home sales reported for August or existing home sales reported for September.”

Supporting the continuing trend of increasing refinance applications, on Thursday Freddie Mac released its Primary Mortgage Market Survey reporting the national average for a 30-year fixed-rate mortgage at a cost of 0.7 origination points decreased slightly from last week to 4.32 percent.

Some positive news

There were a few reports this week that showed some positive economic data beyond the increase in private sector jobs. Retailers reported modest increases in sales in August compared to July. Back-to-school shoppers perhaps were riding the small increase in consumer confidence, a key measure of future economic activity. Consumers are still very concerned about the future, especially in regards to their employment, but August saw a small gain in their view of their current economic conditions.

The buying mentality did not cross over from retail sales to auto sales however as August sales for new automobiles were at their lowest level in 27 years. Combined with the Commerce Department revising the GDP numbers for the second quarter even lower, the negative economic news continues to overshadow any positive news that may be coming out of the economy.

If you are using mortgage calculators for determining the amount of a new home loan or refinance mortgage feel confident to continue to use the low mortgage rates currently available as part of your calculations.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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