What's good for job-seekers is bad for mortgage shoppers. So today's positive employment report is negative news for people who didn't lock a mortgage rate earlier in the week.
The U.S. economy added a net 288,000 jobs in June, the Labor Department reported today. The unemployment rate fell from 6.3 percent in May to 6.1 percent in June. Those numbers are better than expected, so the effect on mortgage shoppers will be worse than expected.
I'm fuzzy on the numbers, though
How much higher will mortgage rates go today and into next week? I don't know. The effect might be muted by the Federal Reserve, with its program of buying mortgage-backed securities. Your lender might tell you today that you can get the same interest rate as yesterday, but you'll have to pay more in discount points.
The effect on 10-Treasury yields has been minimal so far today. The yield went up from about 2.63 percent to 2.68 percent. If the effect on mortgage rates is similar, this might not be that big of a deal for mortgage borrowers.
It's not so simple
Four years ago, when the unemployment rate was much higher, the average rate on a 30-year, fixed-rate mortgage was higher than now. And that was during the era of quantitative easing. There's not a direct line between mortgage rates and unemployment rate (or any other economic indicator), as you see here:
Unemployment and mortgages across five Junes
|June 2010||June 2011||June 2012||June 2013||June 2014|
|Unemployment rate||June 2010 9.4%||June 2011 9.1%||June 2012 8.2%||June 2013 7.5%||June 2014 6.1%|
|Average 30-year fixed rate for the month||June 2010 4.85%||June 2011 4.68%||June 2012 3.90%||June 2013 4.24%||June 2014 4.32%|
Not yet time for rejoicing or despairing
"It is hard to argue that the labor market remains moribund," economist Joel Naroff says. "But the missing link remains wages."
Ah, wages. With that big drop in the unemployment rate, what did we get? An average raise of 6 cents an hour, to $24.45. With average hourly wages stagnant, inflation remains low. And low inflation keeps a lid on interest rates, including those for mortgages.
Naroff says that employers "are holding the line for as long as possible" on wages. "But the longer they delay, the bigger the retention and attraction problem becomes and when that dam breaks, it could mean a lot faster gains in wages than anyone expects."
If wages do zoom late this year, will mortgage rates rise rapidly? That depends partly upon the Fed. I think that, if you want to snag a mortgage rate below 5 percent, you should try to get that mortgage this year. Maybe into the first quarter of next year.
For its part, the Mortgage Bankers Association, whose economists now more about this than I do, forecast that the 30-year fixed will average around 4.6 or 4.7 percent the rest of this year, then average 4.9 percent in the first quarter of 2015, then 5.1 percent in the second quarter of next year.