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May 4th, 2012

What the job numbers mean for mortgage rates

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Job MarketThis morning’s job numbers proved to be another disappointing month for employment in the U.S. The Bureau of Labor Statistics reported this morning that only 115,000 new jobs were added last month. The unemployment rate eased to 8.1 percent in April from 8.2 percent in March. The decline in the unemployment rate was caused by more job seekers giving up their search for new work.

The good news is that March’s figure was revised upward, from 120,000 to 154,000. From December to February, the monthly job’s numbers have averaged 252,000 new jobs each month. Economists believe that the unseasonably warm winter stole some hiring from March and April.

What the jobs numbers mean for mortgage rates

These days, any weak economic report gives mortgage rates an excuse not to rise, but not necessarily an excuse to continue falling.

“Mortgage rates are again at record lows, but today’s employment report adds no additional downward pressure to them,” says Keith Gumbinger, vice president of HSH.com. “Unless the economic news begins to substantially improve, we expect mortgage rates will remain around at or just slightly above record lows for the foreseeable future.”

Will the Fed react?

Besides the economy acting as a weight around mortgage rates who love to rise faster than they fall, the Fed is also expected to have a continued impact on the trajectory of mortgage rates.

Currently, the Fed’s Operation Twist program (essentially, the Fed is purchasing more longer-term securities in an attempt to keep downward pressure on long-term interest rates, such as mortgage rates) is slated to expire at the end of June. It just so happens that the Fed’s next FOMC meeting is scheduled for June 19 and 20.

In HSH.com’s latest Two-month forecast for mortgage rates, Gumbinger said he expects the Fed to act if things don’t start to pick up:

At the moment (and of course subject to change) we think that the Fed is likely to extend the expiration date for Operation Twist for perhaps another six months. This would achieve several goals: first, it would signal that although the economy is still troubled, it is not expected to worsen and is even improving slowly in a number of ways; two, that the Fed is carefully watching and evaluating the needs of the economy, and reserves the right to move as needed, and three, that there will be additional time for the housing market to heal before it needs to worry about rising interest rates. Low rates are important to the success not only purchases, but also to the success of HARP 2.0, too.

For all you potential homebuyers and refinancers out there, today’s job report, while another reality check to all of us that economic productivity is still a long way off, is another sign that historically-low mortgage rates are there for the taking.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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