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Rising Job Numbers Plus Unchanged Mortgage Rates Equals … What?

Phil Hall
Jul 03, 2014

New data on job creation and average fixed mortgage rates were simultaneously released today by the U.S. Bureau of Labor Statistics (BLS) and Freddie Mac. While this data was not intentionally timed to be released on the same day, the announcements offered a new affirmation on the overlap between the job market and the housing market. Freddie Mac’s Primary Mortgage Market Survey (PMMS) found the 30-year fixed-rate mortgage (FRM) averaged 4.12 percent with an average 0.5 point for the week ending July 3, down from last week when it averaged 4.14 percent. A year ago at this time, the 30-year FRM averaged 4.29 percent. The 15-year FRM this week averaged 3.22 percent with an average 0.5 point, unchanged from last week and down from 3.39 percent one year ago.   The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.98 percent this week with an average 0.4 point, unchanged from last week. A year ago, the five-year ARM averaged 3.10 percent. The one-year Treasury-indexed ARM averaged 2.38 percent this week with an average 0.4 point, down from last week when it averaged 2.40 percent. At this time last year, the one-year ARM averaged 2.66 percent. Frank Nothaft, vice president and chief economist at Freddie Mac, acknowledged the limited rate movement without providing an explanation. "Mortgage rates were little changed from the previous week and remain below levels seen the same time last year, which should provide some help with homebuyer affordability in many markets,” said Nothaft. “Recent housing data was better with pending home sales up 6.1 percent in May and overall construction spending showing a slight improvement with private residential spending now up 7.5 percent on yearly basis." However, Nothaft did not cite job creation has having any impact—either positive or negative—on the state of housing. A few hours prior to the Freddie Mac data announcement, the U.S. Bureau of Labor Statistics reported that total nonfarm payroll employment increased by 288,000 in June, and the unemployment rate declined by 0.2 percentage point to 6.1 percent. The financial services sector added 17,000 jobs in June, with a gain of 9,000 in insurance carriers and related activities and more than 9,000 jobs added in the real estate and rental and leasing sectors. While the importance on creating high quality jobs has been cited by many industry leaders as being crucial for stabilizing the housing market, the new employment only reinforces the inherent problems within the current job creation environment. “The job market shows a positive trend,” said Robert T. Chasteen-Scheer, senior vice president at Rockville, Md.-based Coester Valuation Management Services. “However, we are going to need to see an income increase, as well as increase in affordable housing, before it starts making an impact on housing – with income increasing being the biggest factor for the foreseeable future. People need to make more money.” Chasteen-Scheer added that another factor is also laced within this picture. “The issue with housing is not only jobs, but also the dynamic of who's interested in buying and what are they buying,” Chasteen-Scheer continued. “There's a shortage of new homes that has caused a backlog and spike in prices in certain areas.” Frank Sommese, regional vice president at Chicago-based Bridgeview Bank Mortgage, also acknowledged that inventory constraints are having a negative impact. “A lot of people are locked into very good rates and do not want to move,” Sommese observed. “People are staying in their homes longer than before. If there were more jobs being created and incomes were higher, that would definitely help the housing market.” Yet Erick Strobel, owner and operator of Johnstown, Colo.-based Strobel Financial LLC, stressed that some regions were not experiencing problems job creation and housing. “I believe the housing market is recovering,” Strobel said. “I’m in Colorado and we’re seeing large employment numbers with the oil and gas industries, as well as in the expansion of the Air Force base in Colorado Springs.” On a positive note, Allen Beydoun, senior vice president of sales at Troy, Mich.-based United Wholesale Mortgage (UWM), believes that today’s job data is a keystone to a brighter economic picture. “Unemployment is at its lowest since 2008,” Beydoun said. “We feel the economy is slowly but surely getting better—and that’s only a positive for the housing market. We will have more people moving into bigger homes or upgrading, and we will see new construction. And a continued drop in unemployment will give the purchase market a lift. Lower unemployment means greater stability, which means higher consumer confidence.”
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