Mortgage rates rise along with job outlook
Mortgage rates climbed this week as investors grew optimistic about the job market. Rates could jump again if investor optimism is fueled by the November employment report, scheduled to be released Friday.
30 year fixed rate mortgage – 3 month trend
The benchmark 30-year fixed-rate mortgage rose to 4.55 percent from 4.44 percent last week, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.37 discount and origination points. One year ago, that rate stood at 3.5 percent. Four weeks ago, it was 4.35 percent.
The benchmark 15-year fixed-rate mortgage rose to 3.62 percent from 3.47 percent last week, and the benchmark 5/1 adjustable-rate mortgage rose to 3.33 percent from 3.29 percent. The benchmark 30-year fixed-rate jumbo rose to 4.57 percent from 4.45 percent.
The catalyst for this week's uptick was the release of a stronger-than-expected report on private-sector jobs on Wednesday. Payroll processor ADP says companies added 215,000 jobs in November. ADP also revised October's figures significantly to 184,000 jobs from the 130,000 it had initially reported.
"Anything that says the economy is doing well is bad for rates," says Bob Walters, chief economist for Quicken Loans.
Keep your eyes on Friday's job report
Where rates head next depends on whether the government's closely watched employment report supports the perception that the labor market is strengthening. If the November report disappoints, rates will likely retreat. But if the report is positive, the upward trend in rates will probably continue.
Economists expect Friday's report will show that employers added about 180,000 jobs in November, down from 204,000 jobs the previous month.
"If it comes in a bit stronger we will get a slight uptick in rates," says Cameron Findlay, chief economist for Discover Home Loans.
To be on the safe side, borrowers should lock a rate as soon as they are comfortable with the numbers, Walters says.
"I'm always a proponent of locking," he says. "People should know when there is an event happening that day that could move the market one way or the other."
The Fed still rules mortgage rates
These employment figures could have an even bigger effect on mortgage rates as they may influence the Fed's decision on when to reduce the pace of the bond-purchasing stimulus program. The Fed says it will taper the $85-billion-per-month program after the labor market improves.
"If the Fed decides to withdraw, rates are going to go higher," Findlay says.
The next Federal Reserve meeting is Dec. 17-18. Many economists think it's unlikely that the Fed will announce a reduction of the stimulus this year, but it could happen.
Regardless of the Fed's decision, as long as the housing market and the economy continue to improve, rates have only one way to go next year, Findlay says. And that's up.
"I don't see a lot of things on the horizon that would lead to a rate decline," he says.
Homes sales are up
As for housing, higher interest rates don't seem to have hurt home sales much. Sales of new homes increased 25.4 percent in October compared with September, the U.S. Department of Commerce reported Wednesday.
New homes were sold in October at a seasonally adjusted annual pace of 444,000 units, up from the revised September rate of 354,000, according to the report.
"The strong October results return us to the sales levels we saw earlier this year and negate the pause caused by the sudden jump in interest rates," says David Crowe, chief economist for the National Association of Home Builders. "We expect sales to continue to rise as pent-up demand is released, and first-time home buyers creep back into the market."