Mortgage rates react positively to negative employment news

April 16th, 2013

They say it's an ill wind which doesn't blow somebody some good. A disappointing report on employment growth in March may have had a short-term benefit for some Americans, though, as mortgage rates dropped sharply in the days that followed. However, continued economic weakness could yet have a disruptive impact on the mortgage market.

A setback for the economy

On April 5, the Bureau of Labor Statistics announced that payroll growth, which had risen to 268,000 in February, slumped to just 88,000 in March. This figure not only failed to continue February's strong employment growth, but it even fell short of the past year's mediocre monthly average of 169,000.

With the unemployment rate still fairly high at 7.6 percent, jobs growth is a closely-watched indicator of whether or not the economy is making any progress. This is not the first time that a promising month or two of employment growth has been followed by weaker numbers, indicating that the economic recovery is still having a hard time gaining traction.

Mortgage rates drop

One thing that tends to happen when the economy shows signs of weakness is that interest rates decline, and Freddie Mac's weekly survey of mortgage rates showed this happening in the wake of the disappointing jobs report. In the week ending April 11, 30-year mortgage rates dropped by 11 basis points, to 3.43 percent. 15-year rates dropped by 9 basis points, to 2.65 percent. For both types of mortgages, this is the lowest level in over two months.

In all, 30-year rates have dropped by 20 basis points in just four weeks. That's enough of a drop to make it worthwhile for many homeowners to consult a refinancing calculator to see if they could save money on a new mortgage. Similarly, potential home buyers may want to check a mortgage calculator to see if this drop in rates might allow them to set a new price target.

Hidden concerns

Still, not all the impact of the weak jobs report can be measured by loan calculators. Continued economic weakness could well make mortgages harder to come by. It could also hamper refinancing efforts by eroding home values. Those who gained an opportunity in the wake of the weak jobs report may be wise to act on it before the economic news gets any worse.

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.

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1 Responses to "Mortgage rates react positively to negative employment news"
  1. Jon A 23, Apr, 2013

    I dont know, I think that there is a possibility the housing market might actually do better in the coming times. We can only wait and see...


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