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January 13th, 2014

Mortgage rates drop thanks to the employment report

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Job MarketThe economy, and by extension mortgage rates, is a funny thing. Over the last several weeks, the economy has been a steady drumbeat of positive economic data. The latest available GDP estimate was over four percent for the first time in a while. The Federal Reserve was confident enough in the economy that they finally decided to reduce their purchases of Treasuries and Mortgage Backed Securities.

But thanks to this positive data, mortgage rates began trending upward. Mortgage forecasters, us included, projected that mortgage rates would continue to trend upward during 2014 compared to the year before.

But then Friday’s employment report was released and it took almost everyone by surprise. Just 74,000 jobs were added to the economy in December, reported the Bureau of Labor Statistics. The last time we saw a similar figure was last July.

The result? Mortgage rates posted their first decline in weeks.

Mortgage rates decline

According to the latest data from HSH.com:

  • 30-year: The overall average rate for 30-year fixed-rate mortgages (conforming, non-conforming and jumbo) posted its first decline in about seven weeks, falling by just two basis points (0.02 percent) to 4.62 percent.
  • 15-year: The overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbo) declined just one basis point (0.01 percent) from the prior week, slipping to 3.73 percent.
  • FHA: FHA-backed 30-year fixed-rate mortgages shed three basis points for the week ending Jan. 10, sliding back to 4.24 percent.
  • ARMs: The overall 5/1 Hybrid ARM eased by two hundredths of a percentage point (0.02 percent) to fall to 3.25 percent.

3 reasons it’s not time to panic

Sure, the employment numbers were a bit of a shock, but it’s not time to panic for several reasons:

  1. Job numbers are often revised. On Friday, November’s figures were given a 38,000 upward revision. There’s a good chance we’ll see December’s low number given a bit of a boost come February.
  2. Gets borrowers off the fence. If anything, the weak employment numbers caused some borrowers to pull the trigger. “The disappointing employment report on Friday presents something of an opportunity for mortgage shoppers, at least as we begin [this] week,” wrote Keith Gumbinger, HSH.com vice president and author of the weekly Market Trends newsletter. “The influential 10-year Treasury yield dropped back by about 11 basis points on Friday, and that should in turn chop an eighth of a percentage point off of 30-year fixed mortgage rates to start the week.”
  3. The jobs numbers shouldn’t deter the Fed’s long-range plans. At most, December’s job numbers may give the Fed cause for pause during their next meeting, but one pause in tapering won’t disturb the overall plans they have for 2014.

This week

We will see some more December data as the week unfolds, but don’t expect the economic numbers that come out this week to mirror the December job numbers.

“Rates should be lower earlier in the week, but with few indications at the moment that other December data will come in on the weak side, we think that some of the early-week dip will wash out by the end of the period, leaving us with a 5-6 point decline in rates by the time it comes to a close into a three-day weekend,” concluded Gumbinger.

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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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