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Jobs report kills hope of lower rates

By Polyana da Costa · Bankrate.com
Friday, July 5, 2013
Posted: 12 pm ET

Today's jobs report for June has crushed hopes of lower mortgage rates and could actually make rates climb higher.

The U.S. economy added 195,000 jobs in June, more than the 160,000 economists had expected. And the numbers for the two previous months were revised upward from 149,000 to 199,000 in April, and from 175,000 to 195,000 in May.

The unemployment rate stayed at 7.6 percent with 11.8 million people unemployed. Still, the latest reports show steady job growth, which usually isn't good for mortgage rates because it makes investors confident about the economy.

The bad news following the good news

But what makes this report potentially bad for mortgage rates is what investors will read between the lines. Last month, rates spiked when the Federal Reserve said it could trim its $85-billion-per-month bond-purchasing program this year if employment continued to improve. Many investors will interpret this report as the latest sign that the economy is healthy enough to walk on its own without the Fed holding its hand.

You and I may disagree with that assessment, but that doesn't matter for mortgage rates.

See those bond yields jump

Movements in mortgage bonds yields and the 10-year Treasury note normally are an indication of where mortgage rates are headed. Since the jobs report was released this morning, Freddie Mac's mortgage yields jumped to 4.21 percent from 3.88 percent on Wednesday, before the holiday. The yield on the 10-year note spiked to 2.71 percent from 2.47 percent.

If you are planning to get a mortgage or refinance in coming days, quit wishing for lower rates and just hope they don't climb much higher by the time you lock.

Some perspective

And here is a fun fact in case you think the 4.5 percent you are getting for a 30-year fixed loan is too high: Around this time of the year in 2001, the rate on a 30-year fixed mortgage was 7.2 percent.

Follow me on Twitter @Polyanad.

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1 Comment
commonme
July 05, 2013 at 2:48 pm

If you really want a scare, take a look at rates in circa '81. The talk was if we could get rates UNDER 10% the housing market would come back. Lets face it, rates have been artificially too low for too long. The US has had the lowest rates in the world for several years. This would also make no one want the dollar, driving up dollar based commodities (oil, anyone?). I guess we weren't supposed to put all the pieces together that they laid on the table. Used the "hide it in plain site" theory and it seems to have worked.
Pieces: oil prices rise when dollar drops. Interest rates (US government bonds) drive demand for the dollar, too low investors will take a chance elsewhere. Low dollar means higher currency risk for foreign investors in US stocks. Lower interest means seniors don't have as much disposable income they would likely spend.
And we wonder why things are not good.

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