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Rates Are Still Climbing; Employment Numbers are Strong

Employment Numbers Show Many Have New Jobs

Employment Numbers Show Many Have New Jobs

Orange County, CA – On Wednesday, July 3rd for the first time in nearly two weeks, mortgage rates dropped. This led to many relieved sighs on the parts of attentive consumers. But that’s not the end of the ride, folks. We’ve been talking for weeks now about market volatility and how it’s going to lead to higher rates; well, volatility means there will be ups and downs…and in this case, there will still be more ups than downs. Friday the 5th showed that quite profoundly, as rates shot back up, giving back all the gains from the bast week…and then some. Why? The Bureau of Labor STatistics released the monthly employment report.

This move can be seen as part of a broader leveling-off process, but the process is far from over. The employment data released this morning was stronger than expected by a large amount. The market estimated about 150,000-160,000 new jobs to be added. The numbers came in over 20% higher at 195,000 new jobs. In addition to that, the previous two months reports were revised upward by 70,000. Essentially, the numbers reported n previous months were off by 70,000! The net impact of todays report is an additional 265,000 new jobs that the market was not aware of. The caveat is that there is an increasing trend in part time employment. Quantity is important but quality will matter in the long run.

Lower unemployment means a stronger economy. With a strengthening economy money flows out of bonds and into stocks. Traders sell positions in bonds. Rates are tied to the yield on bonds. Therefore weaker bond markets, including mortgage-backed bonds, cause interest rates to rise.

Furthermore, employment data is generally known to be a good way to predict the Federal Reserve’s purchases of, among other things, mortgage-backed bonds. With the Fed already having announced that it intends to taper off those purchases by next year, the strong employment data is further support for that move. Since the Fed is currently the biggest buyer of bonds, when they stop buying it will have a major impact on rates.

With today’s strong employment numbers it may very well mean that the Federal Reserve will begin tapering purchases in July rather than September. (There is no meeting of the Fed in August, so it’s expected to be identical to July, however July turns out.)

If that happens, you can expect to see another spike in mortgage rates.  If it doesn’t, you can expect rates to stabilize relatively quickly and remain relatively stable through the Fed’s September announcements.

The unemployment rate is currently the most significant piece of data in regards to mortgage rates, due largely to it’s role in determining the Federal Reserve’s policies. It is a leading economic indicator about the health and direction of the economy. There is still work to be doen and many people still looking for work. But the direction is clearly growing. The flip side to all this is to see how the sudeen rise in rates will effect the economy in the next 3-6 months. Higher rates make borrowing money more expensive…for individuals and businesses alike. Higher rates slow growth. So a rapid rise in rates is not beneficial for the economy either.

What does this mean for the consumers? Waiting to get a loan at this point in time is a high-stakes gamble — big risks, but potentially big rewards as well.  But you don’t need to gamble with PrimeLending. The company is uniquely positioned to help consumers with our one of a kind float down program. This program allows our clients to lock their rate immediately to protect against rising rates. But should the market drop, it allows you to lower your rate at no-additional cost.

Contact us today with questions about your situation or our famous Float Down Program.

Scott Storace

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