Jul 10, 2017 | By Jeremy Collett
Mortgage rates spike ahead of mixed jobs report
After the Federal Reserve raised interest rates last month, mortgage rates were expected to follow suit. But three weeks passed with levels at or near their yearly lows, a trend that seemed to ignore a rate hike’s typically all-powerful influence. However, a recent bond sell-off drove U.S. Treasury yields higher, and mortgage rates soon followed: the 30-year fixed shot up 8 basis points week-to-week (3.88% to 3.96%), while the 15-year fixed (3.17% to 3.22%) and 5/1 ARM (3.17% to 3.21%) also registered significant increases.*
Friday’s jobs report from the U.S. Bureau of Labor Statistics exceeded non-farm payroll expectations, adding 222,000 new jobs to defy the consensus estimate of 179,000. However, it’s the stagnant wage growth numbers that have traders talking: month over month, average hourly earnings grew by only +.153%, and growth in wages remains nowhere to be seen. There was also a slight uptick in the unemployment rate to 4.4% from May’s 4.3%. Selling in the bond market has slowed down, but with the 10-year note trading through 2.38% as of Thursday, the damage may already be done.
The encouraging payroll numbers and low unemployment will most likely convince the Fed to make another rate hike before 2017 comes to a close, as these metrics reflect a healthy—albeit slow-growing—U.S. economy. The probability of another hike by the mid-December FOMC meeting currently stands at just over 60%.** Sure, there are four months of unpredictable market activity and political intrigue between now and then to potentially shake things up, but if global economies and global leaders manage to stay in their lanes during that timeframe, look for another rate bump. This week, metrics on inflation and retail sales are up for analysis and Fed chair Janet Yellen will be making remarks, two elements that may further clarify future rate policy.
Homebuyers continue to face a U.S. housing market that is seeing home prices consistently outpace personal income. With interest rates probably increasing by the end of the year and inventory continuing to shrink, it may only get tougher for borrowers to find and buy the home of their dreams. If you’re in the market to buy a new home, it’s best to consult with your mortgage professional and real estate agent sooner than later, so you can lock in a low rate and expand the home search to maximize your buying options.
*FreddieMac.com, “Compilation of Weekly Survey Data” **CMEGroup.com, FedWatch Tool
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