Why Your Mortgage Rate Might Increase In Less Than 24 Hours, And How To Save Your Loan
On the first Friday of each month, the Bureau of Labor Statistics publishes its Non-Farm Payrolls report. Commonly called "the jobs report", Non-Farm Payrolls highlights employment changes across 10 private labor market sectors including insurance and finance.
Non-Farm Payrolls is a report closely watched by Wall Street, and one which affects the U.S. mortgage market directly. The U.S. labor market is linked to the future of the Federal Reserve's QE3 program, and QE3 is a key driver of today's 30-year fixed rate mortgage rate.
November Non-Farm Payrolls will be released Friday. Cautious borrowers may want to lock their floating mortgage rate before that release can occur.
The Jobs Market : 6.8 Million Jobs Added Since 2010
The Non-Farms Payrolls report is a broad look at the U.S. labor market. By industry, it shows which economic areas are expanding, and which areas are contracting. In addition, it calculates the national labor participation rate and the overall U.S. unemployment rate.
Non-Farm Payrolls is a monthly Wall Street highlight. Job growth is paramount to economic growth, and economic growth drives investment strategy.
Recently, though, the jobs report's importance has been magnified. This is because the Federal Reserve has said it's "data-dependent", with the future of the group's stimulus programs dependent of the strength of the U.S. economy.
Among the Fed's stimulus programs is QE3. Via QE3, the Fed suppresses U.S. mortgage rates.
Low mortgage rates are "good", the Fed has reasoned, because low rates stimulate the housing market which, in turn, helps to support U.S. jobs in construction, retail, and banking among other sectors.
Low rates spur refinances as well, which increases household savings and may contribute to higher levels of consumer spending.
Linking Job Growth To QE3
Between 2008-2009, the U.S. economy fell into recession, catalyzed by the failure of Lehman Brothers; the near-collapse of mortgage lending; and the movement of Fannie Mae and Freddie Mac into conservatorship by the Federal Home Finance Agency (FHFA).
In just those two years, 7.4 million jobs were eliminated.
Since that time, however, hiring has resumed. 6.8 million jobs have been added back -- a 92-percent recovery in terms of "employed persons". As compared to the jobs lost, the jobs created since 2010 may not be of equal pay or stature, but more employed persons is a positive.
The national unemployment rate has dropped three percentage points, and total household income is up. As jobs go, so goes the economy and, therefore, QE3.
Today's home buyers should be on notice.
Should job growth be shown to be strong in November, the Fed may move to end QE3 sooner rather than later which would lead mortgage rates up, similar to what happened between May and June of this year; and again in the days following the release of October's job report.
With a better-than-expected result, rates could bump 0.25 percentage points in minute -- as they did last month.
Analyst calls are for as many as 180,000 net new jobs created in November. However, you may not want to wait to find out whether the analysts are correct. It may be prudent to lock your mortgage rate right now.
Why Jobs Matter To The Housing Market
The U.S. labor market enjoys a fairly tight link with housing.
Job growth provides a U.S. household with income, confidence and capital. Confident persons with expendable and increasing income are more likely to buy a home or relocate than persons without these things.
More buyers in the market shifts the supply-and-demand curve, and results in higher prices which, in turn, creates real wealth for home sellers.
Employed persons are also more likely to get mortgage-approved. This is because a person with a job earns a regular paycheck and regular paychecks are typically needed to gain mortgage approval from a lender.
Even before your first day of work, you can get a mortgage. All you need is an offer letter.
Whether causation, correlation or neither, the U.S. labor market's resurgence has corresponded with a sharp rise in home values. Nationally, values are higher by 15-20% since two years ago and, in some markets including Phoenix, Arizona, values have climbed by nearly twice that amount.
Rising home prices render homes less affordable. Rising mortgage rates, however, do much more damage. Every 1% rise in mortgage rates lower a buyer's purchasing power by 11%. With a strong jobs report Friday, you'll suddenly get less house for your money.
Are You Ready To Compare Mortgage Rates?
In October, the economy added 204,000 net new jobs. For November, it's expected to show 180,000. Save for a very weak number, mortgage rates will likely rise tomorrow morning. The jobs report releases at 8:30 AM ET.
Today may be your best chance to get a really low rate. Compare live rates now. The steps are free, fast, and there's no obligation to continue whatsoever.