Mortgage Rates Still Good For Now...but what about 2017?


Bay Area homeowners and home shoppers have enjoyed a low rate environment for years. But there are real signs that mortgage

rates are poised to move higher after release of the October Non-Farm Payrolls data. More than half-million net jobs were added in the past three months, after upward revisions to August and September numbers. But healthy job numbers are likely not the dominant cause of rising mortgage rates. Rather, rising wages hint strongly that inflation is becoming more of a concern in the economy. This is because inflation is bad for mortgage rates.

But more important is how new jobs data will affect the December 2016 Federal Reserve Meeting. It appears that a Federal Funds Rate hike is all but certain. The good news is that mortgage rate shoppers in San Francisco and the surrounding Bay Area still have a limited window in which to lock their mortgage rate.

So what’s up with this jobs report from last week and every month, for that matter?  Well, on the first Friday of each month, the Bureau of Labor Statistics releases its Non-Farm Payrolls report. More commonly known as “the jobs report,” Non-Farm Payrolls gives a detailed look at the nation’s workforce. The report includes jobs by sector, average earnings, and the national unemployment rate. The Non-Farm Payrolls report is among each month’s most closely-watched economic releases because so much of the U.S. economy is tied to jobs.  When the labor force is expanding and average wage earnings increase, the economy tends to expand. As more income is earned by U.S. households, more taxes are paid to federal, state, and local governments. This leads to the purchase of more goods and services by both consumers and governments, which keeps the cycle going. Spending, spending, spending…makes the economy go ‘round!

A strengthening jobs economy also increases the disposable income available in the typical U.S. household, which can boost consumer confidence and personal consumption. This, too, promotes a cycle of strong growth. Growth begets growth. Conversely, when job growth is low and confidence is down, consumption tends to drop. In markets like this, less income is earned, fewer taxes are paid, and demand for goods and services falls. In down markets, businesses have fewer reasons to hire new workers, and they often reduce the size of their existing workforce to something smaller. This cycle, too, feeds on itself. Because of the importance of jobs to the broader U.S. economy, economists watch the Non-Farm Payrolls report closely.

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Wall Street watches it, too, which is why “jobs” affect your mortgage rate here in the Bay Area. The data puts Wall Street on notice, and the Federal Reserve is no doubt at attention, too.  Remember that the job of the Federal Reserve is to maximize the U.S. labor market while maintaining stable prices throughout the economy. Since the start of the decade, 14.7 million jobs have been created and now wage growth is returning. Global economic weakness is still rampant, but, after strong wage data this month, that may not be enough to keep the Federal Reserve from raising rates at its December 2016 meeting.

So what does this all mean to the Bay Area mortgage shopper, whether buying a home or refinancing an existing mortgage? Well, if you are still in the market to buy or restructure your current mortgage, the remainder of the year looks to be a good time to do it.  Beyond that is anyone’s guess, but the near future is still favorable for you. For a rate quote or to be pre-qualified, please email me.

Arjun Dhingra