Blog
June 1st, 2012 (Modified on June 4th, 2012)

Job numbers disappoint. Will lower mortgage rates follow?

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Job MarketThe graphs and charts say it all. After a stable and optimistic first quarter, employment has once again begun to trend downward.

Only 69,000 new jobs were added in the U.S. last month, and the unemployment rate rose for the first time in nearly a year, finishing the month of May at 8.2 percent.

While the first quarter of 2012 boasted average monthly gains of 226,000, recent revisions reduced both March and April’s figures by 49,000 jobs.

The bad news continues: the number of long-term unemployed, those out of work for 27 weeks or longer, increased to 5.4 million and now make up 42.8 percent of the unemployed.

The affect on mortgage rates

The big question which could impact mortgage rates the most is, how will the Fed react in light of this recent jobs report?

On Wednesday, William C. Dudley, president of the Federal Reserve Bank of New York, said, “As long as the U.S. economy continues to grow sufficiently fast to cut into the nation’s unused economic resources at a meaningful pace, I think the benefits from further action are unlikely to exceed the costs.  But if the economy were to slow so that we were no longer making material progress toward full employment, the downside risks to growth were to increase sharply, or if deflation risks were to climb materially, then the benefits of further accommodation would increase in my estimation and this could tilt the balance toward additional easing.”

The Fed’s most likely course of action would be to extend Operation Twist which expires this month. Operation Twist is a purchasing program which involves the Fed purchasing more long-term securities in an attempt to keep downward pressure on long-term interest rates, such as mortgage rates.

But if the Fed doesn’t react, can we still expect mortgage rates to fall?

Well, despite the sputtering U.S. economy and an even shakier economic situation in the Eurozone, the answer might be still be “no.” May’s employment report doesn’t necessarily give rates an excuse to fall as much as it doesn’t give rates a reason to rise (mortgage rates always rise faster than they fall).

Dan Green, a loan officer in the Cincinnati area, wrote as much on his blog. “Mortgage rates look great. That said, we can’t expect them to drop much more. Even as the global economy sputters, mortgage lenders have little reason to pass on savings. There are fewer banks ‘in the game’ and the ones that have stayed are already near loan capacity.”

Green continues, “Longer turn-times matter because they necessitate longer rate locks. With longer rate locks come higher mortgage rates.

“For example, many banks today are already recommending a 45-day rate lock for all refinance transaction. The simple act of moving from a standard 30-day rate lock to a 45-day rate lock adds 0.125% to your mortgage. In this way, Freddie Mac’s published ‘rate’ is actually understated by an eighth of a percent.”

While Friday’s job report is another reminder that the “great recession”–that technically ended years ago–isn’t that far behind in the rearview, it is yet another encouraging sign for potential homebuyers and refinancers shopping around for the lowest possible rates.

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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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