Mortgage rates improve as job growth stays weak

January 07th, 2011

The first week of 2011 is in the books and mortgage rates improve with 51 weeks to go. Economic news impacting mortgage rates and housing markets was fairly focused on one sector of the economy. If you are using mortgage calculators to determine if you should apply for a refinance mortgage or determine funds needed for closing or your purchasing power, here are some items from the week that may impact you.

Jobs, again

The economic theme for 2010 was jobs. As we start 2011 there is yet to be a change as the theme for the week was once again jobs. Jobs, employment, unemployment, underemployment, layoffs, initial unemployment claims, continuing unemployment claims--all these statistics have had an impact on the policies of the Federal Reserve and the reactions by investors in the equity and bond markets. This week was no different.

Higher employment means a recovering economy which means higher inflation which means higher interest rates. Continuing high joblessness means a stagnating economy and should result in continued low mortgage rates. As you use your mortgage calculators keep these two axioms in mind.

Employment data

On Wednesday, Jan. 5, 2011, ADP released its employment report that said the private sector added 297,000 jobs in December 2010. Investors reacted by selling off mortgage backed securities and other bonds as they anticipated favorable employment numbers from the Department of Labor on Friday. On Thursday initial unemployment claims for the prior week were released and the number stayed above 400,000 claims. While better than the summer numbers of over 450,000 claims, the number does not reflect a healthy hiring environment.

Today, Friday Jan. 7, 2011, the Department of Labor statistics showed non-farm payrolls increasing only 103,000 for the month of December 2010. Further, the unemployment rate did decline to 9.4 percent from 9.7 percent, however the decline was the result of a contraction in the labor force and those actively seeking employment. Not good news for economic recovery when the unemployment rate decline is primarily due to people giving up on finding work.

Following the Department of Labor report, Fed Chairman Ben Bernanke testified before the Senate. In his comments Bernanke said it would be four to five years for the labor market to "normalize fully." In making this statement Bernanke has told the world that the Fed feels the QE2 asset purchase program announced and initiated in November 2010 due to a slow recovery and continued high unemployment is a valid strategy.

Mortgage rate projections

The result of the poor employment data is that mortgage rates sank to their lowest levels in four weeks. The Freddie Mac Weekly Mortgage Market Survey dropped to 4.77 percent at a cost of 0.8 origination points for the benchmark 30-year fixed-rate mortgage. This is only the second reduction in the Freddie Mac survey in the past eight weeks since the Fed's QE2 announcement.

Where will rates be 51 weeks from today? One year ago many felt rates would not be as low as they are today, in the first January in the history of the Freddie Mac survey that opened with the benchmark rate below 5 percent. During the next 51 weeks the expectation is for the economy to begin to grow and shake off the stagnation of the past quarter.

If and when this occurs, mortgage rates will begin to rise. If you are planning on applying for a refinance mortgage or new home loan in 2011 keep on top of the economic news that will impact your mortgage rates and keep returning to the website for pertinent information for your mortgage transaction.

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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