Mortgage rates have been on a gradual rise for most of 2015 and according to Freddie Mac the trend marches on. Freddie reported the 30 year fixed rate moved up to 3.86% from 3.75% the previous week, the biggest one-week gain in all of 2015. Granted, we’re just two and a half months into the year but an 11 basis point move shouldn’t be discounted. The 15 year rate climbed from 3.03% to 3.10% while the 1-Yr ARM rose two basis points to 2.46%.
The increase is primarily due to the jobs report for the month of February. According to the Department of Labor Statistics, the unemployment rate fell to 5.5% while creating 295,000 new jobs, surprising many. So far, that’s five straight years of positive job growth.
Another factor contributing to the drop in the unemployment rate is the number of people in the workforce. The labor participation rate dropped to 62.8 percent, a level not seen since in 37 years. Fewer people actively in the workforce will contribute to a lower unemployment rate.
Stocks have been on a roller coaster yet still the Dow is floating around the 18,000 mark with the S&P 500 comfortably above 2,000. Last week, the NASDAQ climbed over 5,000 for the first time since the early 2000s. All of this money flowing into equities also means funds are pulling out of bonds, including mortgage bonds.
The stronger than expected unemployment report is solidifying the notion of many that the Fed will indeed begin a gradual increase in the Fed Funds rate at the conclusion of the FOMC meetings in June.
Investors however, are anticipating that increase and appear to be positioning themselves ahead of any rate moves. That said, once the Fed does indeed rate the rate, don’t expect mortgage rates to react as they will likely have adjusted prior to any rate move by the Fed.