January saw massive job growth, an encouraging sign for what is generally not one of the busiest months in terms of new jobs.
There were 227,000 jobs added to the economy last month, well above the expected 175,000 jobs. Overall, the job growth report from January shows economic strength, and it could have a large effect on the housing market.
One indicator that was particularly telling was the unemployment rate. In January, the unemployment rate rose by 0.1%, a mark that would normally indicate a slowing economy.
However, this increase actually shows that more people are beginning to look for work, meaning there is a rising level of optimism in the economy.
The only underwhelming part of the payroll change from January was wage growth. Wages rose by a less-than-expected 0.1%, a small mark for hourly wage growth. However, wages did grow overall, meaning there’s no sign of economy downturn.
The payroll report also outpaced December where only 157,000 jobs were added to the economy.
Economic growth is encouraging, and while it leads to a stronger economy, it is also likely to lead to higher mortgage rates.
About Non-Farm Payrolls
A survey of non-farming jobs is conducted each month to gauge the growth of the labor market. The data is presented the following month in the non-farm payroll report.
Because employment is a central part of the economy, the non-farm payroll report is seen as one of the best economic indicators.
While the housing market and mortgage rates aren’t directly connected to the payroll report, they are bound to be affected by any large changes in the economy.
There was only good news last month when it came to economic growth, and it was an excellent way for the economy to start out the new year.
One factor that popped out was the participation rate in the economy. In December, there was a 62.7% participation rate. In January, this rose to 62.9%. People are gaining confidence in the economy, and it will only lead to more growth.
After this report, mortgage rates are likely going to start to rise. Mortgage rate shoppers will want to keep their eyes on rates as they change throughout the day.
How Do Payrolls Affect Mortgages?
When the economy is growing, mortgage rates start to rise.
As people gain confidence in the economy, they also begin to make “riskier” investments. Mortgage rates are tied to mortgage backed securities (MBS), generally seen as one of the “safest” investment options.
When people stop investing in MBS, lenders will be forced to raise mortgage rates to make the investments more attractive.
In an odd way, mortgage rate shoppers get hurt when the economy grows. Of course, individual people tend to benefit from a growing economy, so the rising mortgage rates are always offset by positives.
But when it comes to getting the best rates available on a home, economic growth means that the best rates are already gone. If the economy continues to grow at its current pace, rates will only start to rise to even higher levels.
The growing economy could lead to a Fed rate hike in March, and that would almost instantly rise mortgage rates. Now could be the time to lock in on rates, since there’s no telling what mortgage rates will do in the coming weeks.