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Bipolar jobs report might help homebuyers

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Friday, January 10, 2014
Posted: 1 pm ET
By Polyana da Costa · Bankrate.com

The unemployment rate fell to its lowest in more than five years, but monthly job gains haven’t been this weak since 2011.That’s the gist of the bipolar December employment report that the Labor Department released Friday.

Hard to interpret

Showing that only 74,000 jobs were added to the economy last month and that the unemployment rate fell to 6.7 percent, the report is puzzling, at best. But it may bring some good news to homebuyers and homeowners seeking to get a low mortgage rate.

Economists had expected about 200,000 new jobs for December. The unemployment rate, which is calculated based on the number of people who are actively looking for jobs, fell only because a lot of people simply stopped looking for work.

What it means for mortgage borrowers

“If you are looking to buy a house in the near term, rates might be a little better because of this,” says Michael Becker, a mortgage banker at WCS Funding in Baltimore.

The 10-year Treasury yield, a benchmark that normally influences the direction of mortgage rates, fell to 2.88 percent from 2.98 after the report was released.

“Bonds have rallied because markets think this will delay another taper move and is perhaps a negative signal about the economy,” says Paul Edelstein, director of financial economics for IHS Global Insight.

Low signal-to-noise ratio

Last month, the Fed slowed the pace of the bond-purchase program that had long helped keep mortgage rates low. Investors expected the Fed would continue to trim the stimulus program after reducing it from $85 billion per month to $75 billion. But that was when economic reports showed the economy was clearly improving. Suddenly, this employment report has made everything unclear for investors. The Fed’s next rate policy meeting is Jan. 28-29.

“I think today’s report contained a lot of noise because of the weather. So it isn’t clear how much it says about the economy,” Edelstein says. “I’m not convinced the Fed won’t taper this month. You could argue that they will wait for another data point on the labor market. But the bias is to taper and they can chalk up today’s number to weather.”

Cloud ceiling

If investors buy the weather theory to justify the murky job picture and remain optimistic, rates won’t necessarily fall much. But the uncertainty that these numbers bring should be enough to at least keep rates from rising in the short term, Becker says.

“It should slow down the rise,” he says.

Read more: http://www.bankrate.com/financing/mortgages/bipolar-jobs-report-might-help-homebuyers/#ixzz2qIvmfiBa
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If you are looking to buy or sell a home in Herndon Virginia, please contact me at LeAnne@E4Realty.com or 202-409-7513.

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