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Jobs report and mortgages

By Holden Lewis ·
Friday, November 2, 2012
Posted: 10 am ET

The October jobs report was positive enough that it caused mortgage bond yields to edge upward slightly. It means that mortgage rates might not necessarily rise, but you'll get less bang for the buck when you pay discount points.

The unemployment rate rose to 7.9 percent from the previous 7.8 percent. The number of nonfarm jobs increased by a net 171,000. Neither number is particularly encouraging, but they're not terrible.

Bond yields rose because of revisions to the previous two months' job-creation estimates. Nonfarm payrolls were revised upward by 50,000 for August to 192,000. September's nonfarm payrolls estimate was revised upward by 34,000 to 148,000.

The consistently rising nonfarm payrolls, coupled with a trend of upward revisions, points to a sluggishly growing economy, and that usually spells rising mortgage rates. But rates won't rise steadily until we start seeing monthly net job creation of well over 200,000. I'm guessing that it will be a while before that happens. For one thing, the average workweek has been stuck at 34.4 hours for four straight months. For another, average hourly earnings fell by a penny. Those numbers will rise when we have healthy job growth.

I'll give you a few examples of how large increases in job-creation numbers have affected mortgage rates:

  • Nonfarm payrolls grew by 337,000 in March 2004. The week after the announcement, mortgage rates jumped from 5.6 percent to 5.8 percent.
  • Jobs grew by 360,000 in April 2005. The week after the announcement, mortgage rates blipped up from 5.81 percent to 5.84 percent.
  • Jobs grew by 374,000 in July 2005. The week after the announcement, mortgage rates rose from 5.91 percent to 5.96 percent.
  • The biggest monthly employment increase in the last 10 years was in May 2010, when nonfarm payrolls rose by 516,000. The next week, rates actually fell -- from 4.95 percent to 4.88 percent. Employment took a sharp turn downward after that, and mortgage rates followed.

So mortgage rates don't precisely track employment numbers. And sharp rises in employment don't necessarily equal sharp rises in mortgage rates.

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