Poor jobs report dampens economy, reveals silver lining for borrowers

October 30th, 2013

To a certain extent, bad economic news is good for low mortgage rates. In that respect, the past week was a good one for mortgage shoppers.

Thirty-year mortgage rates dropped by 15 basis points to 4.13 percent as of October 24. In all, mortgage rates have dropped by 45 basis points since late August -- easily enough to make it worth going back to your favorite mortgage payment calculator or refinancing calculator and revising your assumptions.                                     

No mystery over rate drop

The reason for the drop in mortgage rates was no mystery -- the prevailing economic mood is getting increasingly grim. After a delay of 18 days due to the government shutdown, the Bureau of Labor Statistics (BLS) finally released its report of September's net jobs creation on October 22. The jobs report is one of the most closely watched barometers of the economy's condition, and the latest report did not bring good news.

The BLS reported that 148,000 new jobs were created in September. This is well below the average of 185,000 new jobs created over the prior 12 months, and that slowing fits with the growing impression that the economy is losing steam. The previous week, the National Retail Federation had announced that its latest consumer survey suggested that Americans are planning to spend 2 percent less this year than last on overall holiday spending. Given the importance of holiday spending to the retail sector, this planned frugality does not bode well for 4th quarter economic growth.

A stalling economy could lead to lower mortgage rates for two reasons. First of all, mortgage rates are effectively a form of price, and like most prices they are driven by supply and demand. An ailing economy means less demand for capital, and thus the price of borrowing goes down -- including mortgage rates.

This normal cyclical influence is magnified currently by the Federal Reserve's intervention to keep mortgage rates down. The longer the economy struggles, the longer that intervention is likely to continue.

Not bad news for all

That dampening effect on mortgage rates means the economy's recent woes are not bad news for everybody. While economists and policy makers anxiously watch the latest indicators for signs of life, mortgage shoppers will be plugging the latest rates into their loan calculators, and liking the results they see.

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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