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Strong Jobs Report Fuels Upward Trend in Mortgage Rates

The recent jobs report came out significantly stronger than was initially expected. February experienced a payroll growth of 242k, compared to the projected 190k. Meanwhile, the national unemployment rate held at 4.9%; considering that there are more people entering the workforce, this is a favorable figure. All in all, it would seem that the economy is doing better than was indicated by the popular opinions of the past two months.

Since this employment data is one of the most important factors influencing the bond markets underlying mortgage rates, good news in the jobs report often equals bad news in the mortgage market. It is therefore that, on the fourth, we observed a moderate jump in rates. However, relative to the recent upward movement that the market has been experiencing, the move wasn’t terribly dramatic. In fact, it’s the steady upward momentum of mortgage rates that may have prevented a sharper reaction to the recent jobs report.

Many experts are surprised that rates are not higher than they are right now, and are projecting further increases in the near future. If you are looking to secure a new mortgage loan, the good money is on locking into current rates.

Mortgage Rates Improve Slightly Before Fed Announcement

Mortgage rates inched lower going into the third week of March as bonds leveled off. Unfortunately, this improvement was not enough to fully reverse the recent upward trend. Rates last Friday were at their highest levels the market had seen since late January, and we’re currently not much better off.

The question right now is whether this downward movement represents a new trend, or a one-time anomaly. Though it is possible that we will continue to see more improvement in the short term, it is also possible that this recent improvement is due to financial markets calming down on the week of the big Federal Reserve statement coming up on Wednesday. Once this announcement is made, we can expect a big reaction from the financial markets. If the economic outlook is positive enough, we could easily see mortgage rates jump significantly higher by the end of the week. If the data is weak, mortgage rates may ease a bit. There’s no way to anticipate in which direction they will move at this point.

High Rents Boost Home Sales Despite Low Affordability

It is projected that the economy will continue to grow throughout the rest of 2016, bringing increased household income and only small increases in mortgage rates. Unfortunately, this may not be enough to combat the declining affordability of homes. Low inventory continues to plague the market, driving up prices and inciting bidding wars on desirable units throughout the country.

Meanwhile, though the Millennial generation has thus far been slow to embrace homeownership, increasing home values have been inspiring young professionals to make the transition. As rents go up faster than income, it is getting more and more viable to take on a mortgage as an alternative. However, with over 60% of millennials working full-time earning less than the national median income of $46,480, this remains a dream that will remain frustrated for many would-be homeowners for a while yet.

The sustained demand for apartments has brought about an influx of apartment inventory. An increased number of units are added every year, more than sixty percent of which are rented within three months of completion.

Home Sales Still on the Rise, but Year-Over-Year Gains Slowing Down

According to the National Association of Realtors, its Pending Home Sales Index went up by 3.5% in February. This soundly reverses the disappointing decline reported last month and puts current rates of home sales up to its highest levels in seven months. These figures are based only on signed home purchase contracts, but such contracts generally result in transactions closing within about two months and are a fairly reliable wan to predict upcoming home sales.

The bad news is that the gains in home sales seem to be shrinking. Compared to February of 2015, it would appear that sales are up by only 0.7%. Though year-over-year sales have been up for over the last eighteen months, these most recent figures represent the smallest annual gain.

A silver lining in these weakening sales is that we are looking at a similar slow down in price appreciation. Home prices were up by 4.4% last month. Though this is still outpacing wage growth and doing little to counteract rising mortgage rates, it is far more favorable than the 8.1% increase experienced in January.