Mortgage rates are falling after release of the January Non-Farm Payrolls report.
More than a quarter-million jobs were added last month -- many more than expected -- and that should have caused rates to rise.
Mercifully, wages were conspicuously subdued in January, alleviating inflation concerns.
Because low inflation is good for mortgage rates, 30-year fixed FHA, VA, and conventional loan rates are moving lower.
Today's jobs report is good news for today's home buyers and homeowners looking to refinance. Rates remain at historic lows and lenders are approving more loans than any time this decade.
Anyone applying for a mortgage today is the happy beneficiary of superb timing.Click to see today's rates (Feb 20th, 2017)
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 expand.
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 (Feb 20th, 2017)
The January Non-Farm Payrolls report showed 227,000 net new jobs created last month -- much higher than the consensus estimate of one hundred seventy five thousand jobs.
November and December Non-Farm Payrolls data was revised lower by a total of thirty-nine thousand jobs.
Average hourly wages were up in January, raising the annual increase in wages to 2.4%. This is a marked reduction from December's near-3% annual increase in wages.
The data puts Wall Street on notice, and the Federal Reserve is no doubt at attention, too.
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, more than 15 million jobs have been created, but wage growth is subdued -- for now.
The Fed may consider a slower pace of rate hikes in light of new wage data during its second meeting of 2017, commencing on March 14.Click to see today's rates (Feb 20th, 2017)
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 and again at the end of 2016, the group voted to raise the Fed Funds Rate by a cumulative one-half of one percent, noting that future rate hikes were likely, so long as economic conditions warranted them.
The Federal Funds Rate now stands between 0.50% and 0.75%.
The January 2016 Non-Farm Payrolls report is having a positive effect on mortgage rates.
In December, wages grew at the fastest pace since 2009. January's jobs report shows downward-revised numbers for December, and tame wage growth last month.
Wage growth -- or the lack thereof -- is having a greater effect on mortgage rates than the headline job creation number.
Though 227,000 were created -- much more than the market anticipated -- mortgage rates aren't climbing.
This is surprising.
Typically, a heated-up economy in which many jobs are being added would push up rates. Not so this month.
It's because mortgage rates rise during periods of heightened wage growth, and fall with weak inflation data. Wages are directly related to the rate of inflation.
When wages rise, companies pass those costs to consumers by upping prices on goods and services. Consumers must pay more for the same things -- the very definition of inflation.
As consumer expenses rise, companies and government agencies often increase wages again, and the cycle continues.
So, why is that bad for mortgage rates?
Simply put, investors shy away from investments whose value drops over time. They would rather acquire assets that increase in worth.
Mortgage-backed securities -- the assets upon which mortgage rates are "made" -- drop in value as inflation creeps up. For instance, an asset worth $100 today could be worth ninety-five inflation-adjusted dollars next year.
To make up for that loss, investors require higher interest rates to compensate for inflation, and then some.
Ideally -- to an investor anyway -- the rate of return always outstrips inflation. As inflation rises, so does the interest rate on any asset they agree to buy.
Lower inflation means lower mortgage rates for you.
The best course of action, then, is to lock in a mortgage rate while inflation concerns are still relatively low. As the economy heats up in 2017, unemployment could fall, wages could rise, and inflation could become a real factor within the economy.
The best mortgage rates may be the ones you find right now.
The Non-Farm Payrolls report shows steady economic growth and a solid jobs economy. Eventually, this will affect mortgage rates negatively. For now, rate increases remain subdued.
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 (Feb 20th, 2017)
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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2017 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)