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Mortgage rates stand still after bad jobs report

By Holden Lewis ·
Friday, July 2, 2010
Posted: 11 am ET

The June employment report was bad. The effect on mortgage rates has been minimal. The implication is that mortgage rates simply don't have much more room to fall.

Nonfarm payrolls fell by 125,000 jobs in June, about 25 percent worse than expected. In my opinion, the more ominous news was about hourly earnings and the average workweek.

Average hourly earnings fell by 0.1 percent, from $22.55 in May to $22.53 in June. The average workweek shrunk by six minutes, to 34 hours and 6 minutes. So the average worker earned about $3 per week less in June than in May. Don't think that's a big deal? For all employed people, it adds up to shrunken wages of $408 million per week, or $1.6 billion for the month. And that's for people who kept their jobs in June. It doesn't count those 125,000 vanished jobs.

"I think the bottom line is we're not out of this recession," says Ted C. Jones, chief economist for Stewart Title. Yes, he realizes that a recession is defined as two consecutive quarters of shrinking gross domestic product, and a recovery is two quarters of economic growth.

But Jones believes a more useful definition of an economic recovery is two consecutive quarters of job growth. That hasn't happened yet.

Naturally, the terrible job market is bad for real estate, too. "This is technically the 'holiday period' for people involved in the real estate transaction business," Jones says. "It's going to be tough, with that many people losing their jobs."

For people who have jobs, or who are prosperously retired, a bad job market is prime time for getting a mortgage, because a moribund economy brings lower mortgage rates. But this jobs report had little effect on mortgage pricing.

What about the drop in the unemployment rate? It's a bad sign. When people stop looking for work, they're no longer counted as unemployed. "The drop in the unemployment rate was due to a large drop in the labor force which is a worrisome sign that people may be once again giving up on finding a job," economist Joel Naroff says.

Naroff sees some blue sky in the jobs report, because private sector employers added 83,000 jobs. Much of the decline in nonfarm payrolls, he notes, comes from the expiration of 225,000 temporary Census jobs.

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Holden Lewis
July 03, 2010 at 4:08 pm

The problem is not too little credit. The problem is, and has been for the past decade, too much credit.

Yes. And you know what's bizarre? People in the banking industry profess not to believe that the problem was too much credit. They complain that regulations make it harder for consumers to get loans. Well, what's wrong with making it harder to qualify for a mortgage now than it was in 2005?

Sterling W.
July 02, 2010 at 3:54 pm

Yes, nobody is going to be buying homes in the short term. That's clear. Those with cash may, however makes purchases within the next few years when houses will be going for 50% of their current asking price.

The problem is not too little credit. The problem is, and has been for the past decade, too much credit.