It's been said that "slow and steady wins the race."
And when it comes to the Jobs Report for November, it seems that
the labor market continues to improve at a gradual pace. Read on for
what they mean for home loan rates.
There was good news, as the headline number for job creations in
November came in at 120,000, with 140,000 private jobs offsetting
government losses. What's more, some upward revisions to the two
previous readings added 72,000 more jobs than had been reported.
Perhaps even more important, Hourly Earnings grew by just 0.1% -
a number that suggests no threat of wage-based inflation. Remember,
inflation is the arch enemy of Bonds and home loan rates because when
inflation rises, investors in Bonds demand a higher yield to offset the
lost buying power inflation imposes on a fixed payment. And as home
loan rates are tied to Mortgage Bonds, this would mean home loan rates
move higher. So the Hourly
Earnings number was good news for Bonds and home loan rates.
Catching the markets by surprise was a rather sharp decline in
the unemployment rate to 8.6%, the lowest unemployment rate we've since
March of 2009.
While this is good news on the one hand, part of the decline
stems from the fact that 315,000 people were removed from the workforce
totally gave up looking for work. And with 13.3 million
Americans still out of work, more improvement is certainly needed here.
Similarly, the labor participation rate (which is currently
hovering at a 30-year low at 64) needs to move above 66 or it will be
difficult for the
economy to grow fast enough to lower our budget deficit. In
fact, last week Bond ratings firm Fitch issued a stern warning to the
US, saying that our
AAA rating will be in jeopardy if we don't soon do something to
rein in our own ever-growing budget deficit.
It is good news that we're seeing some slow and steady
improvement in the labor marketâ€¦and coupling this with other recent
economic signals, means we are not near a recession at
But our economic health remains fragile, and any external shock
from Europe could easily disrupt the economic improvement we are seeing.
The bottom line is that the uncertainty out of Europe - and the
prospect of additional Mortgage Bond buying (QE3) from the Fed - should
support Bonds and home loan rates as they will benefit from
investors looking for a safe haven for their money. However, it is also
unlikely that Bonds
and home loan rates will improve much further. Inflation, while
not yet a problem, is still elevatedâ€¦and if it continues to creep
will limit any improvement home loan rates may see.
With home loan rates still near historic lows, now
remains a great time to purchase or refinance a home. Let me know if I
can answer any
questions at all for you or your clients.