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Has Kick-Start in Employment Pumped Up Mortgage Rates?

Phil Hall
Jul 10, 2014

Mortgage rates inched up slightly this week, and Freddie Mac’s chief economist vaguely suggested that the job market had a major impact on this change. According to Freddie Mac’s Primary Mortgage Market Survey (PMMS), the 30-year fixed-rate mortgage (FRM) averaged 4.15 percent with an average 0.7 point for the week ending July 10, up from last week when it averaged 4.12 percent. A year ago at this time, the 30-year FRM averaged 4.51 percent. The 15-year FRM averaged 3.24 percent with an average 0.6 point, up from last week when it averaged 3.22 percent. A year ago at this time, the 15-year FRM averaged 3.53 percent. Furthermore, the five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.99 percent this week with an average 0.4 point, up from last week when it averaged 2.98 percent. A year ago, the five-year ARM averaged 3.26 percent. The one-year Treasury-indexed ARM averaged 2.40 percent this week with an average 0.4 point, up from last week when it averaged 2.38 percent. At this time last year, the one-year ARM averaged 2.66 percent.  Frank Nothaft, vice president and chief economist, Freddie Mac, announced the rate increase, while putting an emphasis on the latest jobs numbers. "Mortgage rates increased for the week as the labor market appears to be improving,” Nothaft said. “Based on the employment released last week, the U.S. economy added 288,000 jobs in June, gained 224,000 in May and increased by 304,000 in April. Also, the unemployment rate in June fell to 6.1 percent from 6.3 percent in May.” The Freddie Mac announcement coincided with the U.S. Department of Labor’s announcement that the advance figure for seasonally adjusted initial claims was 304,000 for the week ending July 5, a decline of 11,000 from the previous week's unrevised level of 315,000. The four-week moving average was 311,500, a decrease of 3,500 from the previous week's unrevised average of 315,000. “There's been some positive economic news recently with respect to employment rates, job creation and GDP growth that's generated more optimism in the public's eyes,” observed Ann Fulmer, vice president of industry relations at Agoura Hills, Calif.-based Interthinx. “When people are optimistic, they're more likely to invest in the future.  Buying a home certainly reflects a substantial investment and contributes to the stability of the market, so that's good news.” But is the job market strong enough to help stabilize housing? John Councilman, president of Fort Myers, Fla.-based AMC Mortgage Corporation and president-elect of NAMB—The Association of Mortgage Professionals, noted that housing’s recovery is not occurring in a solid national sweep. “We find some markets in housing are doing very well, but it depends on geographical region and the economic strata of the individuals,” Councilman explained. “But a lot of houses are sitting on the market, especially in the upper middle class range. But modestly priced houses and expensive houses are selling.” Dr. Peter Morici, an economist and professor at the University of Maryland’s Smith School of Business, was cautious about being too positive on the latest job data. “The labor market is improving,” said Dr. Morici. “But it is not giving us a stupendous impact in the housing market. We need to be creating 400,000 to 500,000 jobs per month for recovery, but we’re creating only 300,000 per month. The newest burden is born by young people—they’re not coming out of college and into the new home market. Instead, they are going into apartments—we’ll see rents boom.” And Bob Dorsa, president of the American Credit Union Mortgage Association (ACUMA), expressed concern on the full depth and scope of the jobs numbers. “The unemployment rate is going down—you can’t argue with that,” Dorsa said. “We are finally creating more jobs. In the long term, however, we don’t seem as focused on how many people are either not looking for work or are underemployed.” Dorsa also stated that the ultimate driving force on rates is not in the job market. “The uptick in rates is more focused on the actions of the Fed,” Dorsa added. “In my 40-year career, I cannot recall rates being this low for such a long period.” However, Interthinx’s Fulmer pointed out that other positive factors were at work to help both jobs and housing. “The other good news is that even though affordability is an issue in many markets, it appears that lender compliance with the QM/ATR rule is having a positive effect as well,” Fulmer said. “As you know, that rule became effective on January 10, but many lenders began implementing the new standards and procedures well before that.  The Interthinx Q1 Mortgage Fraud Risk Report shows that, at the national level, employment/income fraud risk has dropped significantly over the past five quarters, and even in markets with serious affordability issues—most notably in California—the risk is generally declining as well. Good quality loans that perform are ultimately a stabilizing force in both the industry and the economy.”
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