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What The Employment Report Can Do To Your Home Buying Plans
The mighty jobs report can have an immediate and significant impact on your monthly mortgage payment. Generally speaking; good economic news tends to be bad interest rate news and vice versa.
A strong Employment Report with lots of jobs created, a real increase in hourly wages and a low unemployment rate without a labor force participation asterisk, is often the start of a tough day for interest rates. The financial markets tend to take robust jobs numbers and bolster economic forecasts, reckoning that growth will surely follow and it is now safe to chase riskier equity market assets for bigger returns.
Meanwhile, the safe haven credit markets drain from the flight-to-risky runoff and suddenly there are more Mortgage Backed Securities (MBS) than there are interested buyers. MBS prices move lower and yields move higher. Higher yields mean higher mortgage rates, higher mortgage rates mean higher monthly mortgage payments, higher monthly mortgage payments may alter a well-constructed home buyer decision tree. Every house on the market just got more expensive.
Financial markets prognosticators argue that economic forecasts are already “priced-in” to the markets well ahead of the actual report. That would mean of course that the jobs report release would have virtually no impact on trading activities, as long as the results are in line with the forecast. This past Friday we saw numbers that were near forecasts and interest rates weathered the day virtually unchanged.
Once in a while the actual numbers reported are significantly weaker or stronger than expected and the financial markets can respond dramatically. An unexpectedly weak jobs report has been known to trigger a rally in the credit markets and drive rates lower, while upward pressure on rates can result from unexpected strength.
Time was, the unemployment rate alone could be market moving, but now all of the economic data contained in the report is digested and assimilated into market force movements. Right now all eyes are on the Fed waiting to see when they will pull the trigger on that long awaited, hyper-analyzed short term rate hike. Bets are placed on which economic release will be the last piece of the tipping point puzzle and the big daddy is the Employment Report. After seeing the results from this past Friday, the smart people seem to think that September will not be when the Fed’s generously accommodative monetary policy ends.
After 25 years of objective observation, I submit that the headline unemployment rate no longer has the muscle it once had. It is and always has been just a telephone survey of selected households, until it was coopted as a political football on the eve of the 2012 elections. Now it has become more of a political tactic than an economic indicator and has lost the stand alone market moving credibility it once had.
The financial talking heads tend to gloss over the underemployed, the jobless claims and the newly-retired-because-no-jobs-exist, and talk about how great things are because the unemployment rate is 5.3% today. But ask the downsized class how they are doing after losing long-term employment in their mid-to-late fifties; find out what their prospects are like, show them that blockbuster 5.3% unemployment rate and see what they have to say.
And for now, get used to that higher monthly mortgage payment.