Mortgage rates are dropping. Again.
After the release of a stronger-than-expected June Non-Farm Payrolls report, mortgage-backed securities (MBS) are improving, which is moving U.S. mortgage rates to record-low levels.
For home buyers who choose to pay discount points, conventional 30-year fixed-rate mortgage rates are near 3.250% and rates for buyers using the 15-year fixed are near 2.625%.
Adjustable-rate mortgage rates are also in the 2s.
For first-time home buyers, the 5-year ARM might be a strong option because few buyers spend more than six or seven years in a residence -- especially buyers of starter homes.
If you've been sitting on the sidelines during this year's run in mortgage rates and housing, there are plenty of reasons to refinance and plenty of reasons to buy.
Looking for the right time to lock a mortgage rate? That time could be now.Click to see today's rates (Jul 29th, 2016)
On the first Friday of each month, the Bureau of Labor Statistics releases its Non-Farm Payrolls report.
More commonly known as "the jobs report", Non-Farm Payrolls gives a detailed look at the nation's workforce. The report includes jobs by sector, average earnings, and the national unemployment rate.
The Non-Farm Payrolls report is among each month's most closely-watched economic releases because so much of the U.S. economy is tied to jobs.
When the labor force is expanding and average wage earnings increase, the economy tends to expands.
As more income is earned by U.S. households, more taxes are paid to federal, state, and local governments. This leads to the purchase of more goods and services by both consumers and governments, which keeps the cycle going.
A strengthening jobs economy also increases the disposable income available in the typical U.S. household, which can boost consumer confidence and personal consumption. This, too, promotes a cycle of strong growth.
Growth begets growth.
Conversely, when job growth is low and confidence is down, consumption tends to drop. In markets like this, less income is earned, fewer taxes are paid, and demand for goods and services falls.
In down markets, businesses have fewer reasons to hire new workers, and they often reduce the size of their existing workforce to something smaller.
This cycle, too, feeds on itself.
Because of the importance of jobs to the broader U.S. economy, economists watch the Non-Farm Payrolls report closely.
Wall Street watches it, too, which is why "jobs" affect your mortgage rate.Click to see today's rates (Jul 29th, 2016)
The June Non-Farm Payrolls report showed 287,000 net new jobs created last month -- eclipsing the consensus estimate of one hundred-eighty thousand jobs.
April and May Non-Farm Payrolls data was revised lower by a collective six thousand jobs.
It's the strongest job tally this year.
Average worker wages rose in June, lifting the annual increase in wages to 2.6%. Wages have stagnated since last decade's recession, and this figure is a step forward.
The data puts Wall Street on notice.
The June Non-Farm Payrolls report and its strength are attracting foreign investment dollars to the United States, but may do little to affect the timing go the Federal Reserve's next increase to the Fed Funds Rate.
Remember that the job of the Federal Reserve is to maximize the U.S. labor market while maintaining stable prices throughout the economy. Since the start of the decade, 14.0 million jobs have been created and now wage growth is returning.
But, with economic weakness globally, the figures may not be strong enough to warrant another Fed Funds Rate increase in 2016, or even 2017.Click to see today's rates (Jul 29th, 2016)
Between December 2008 and December 2015, the Federal Reserve held the Fed Funds Rate in a target range near zero percent as a way to catalyze the U.S. economy.
Then, at the end of 2015, the group voted to raise the Fed Funds Rate to a target range near 0.25 percent, noting that future rate hikes were likely so long as economic conditions warranted them.
The June 2016 Non-Farm Payrolls report, while strong, hit amid a time of weakening global economic outlooks, which are aiding today's mortgage rates.
Yes, labor markets are on a run. Unemployment rates are at the lowest levels in 8 years; job growth is at its strongest since the turn of the century; and, wage growth is starting to creep.
However, job growth isn't runaway and there are reasons to believe that a large amount of market slack still exists -- especially because of pressures from international markets.
The Fed doesn't want to raise the Fed Funds Rate "too soon" and risk a reversal of economic momentum.
But, wage growth is higher than it's been. That leads to inflation and one of the Federal Reserve's charters is to keep inflation rates stable. It does this using the Fed Funds Rate.
Currently, inflation runs around 1.5% annually. The Fed prefer a rate near two percent.
This difference may not seem like much, but it is. Consider how hard the Fed has worked to get inflation rates closer to that two percent target.
Because of these moves, Wall Street has feared that inflation would suddenly re-appear within the U.S. economy, and then be completely uncontrollable. Similar fears fueled a number of high-profile runs in mortgage rates, including during May 2009 when rates rose 125 basis points (1.25%) in just one week.
Recent sidesteps in the global economy are helping rates, too.
With China and the Eurozone facing headwinds and uncertainty surrounding Brexit, investors are seeking safety of principal in U.S. markets. This is causing the U.S. dollar to appreciate in value, which helps to hold inflation down.
The Fed once suggested that it would raise the Fed Funds Rate hike four times in 2016. With inflation rates low, though, and economic uncertainty abound, it may not be able to. To raise rates would pull inflation farther off the Fed's target rate of two percent.
So, what's a mortgage borrower to do with information like this?
For now, maybe nothing. Today's mortgage rates are low and, although there's no direct link between the Fed Funds Rate and mortgage rates, the Fed can influence the direction of interest rates in the future.
June's job report has reinforced the "flight-to-quality" which has helped mortgage rates stay low since the New Year. However, that sentiment can shift quickly, causing mortgage rates to rise.
If you've been putting off a refinance or home purchase, consider moving up your time frame.
The June Non-Farm Payrolls report shows steady economic growth and a solid jobs economy. Eventually, this will affect mortgage rates negatively. Not today, however.
Take a look at today's real mortgage rates now. Your social security number is not required to get started, and all quotes come with instant access to your live credit scores.Click to see today's rates (Jul 29th, 2016)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2016 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)