Arizona Mortgage Rates Still Low

Arizona Mortgage Rate Update

Steady but not stellar is the phrasing being used to describe May’s job’s report.  The now more important than ever US jobs report cited 175k new jobs being created in May 2013. Economic experts had predicted slightly fewer than 175k jobs being created which set up an important market expectation ahead of the actual report hitting the wire this past Friday.  The expert’s job’s report expectation is critical when it comes to stock prices, bond prices and Arizona mortgage rate movement.  It is what investors tend to look at and compare the actual number to.  If the real deal jobs report exceeds the expected jobs number than investors tend to think the economy is in “better than we all thought” shape and if the actual number falls below the expectation than well watch out – the economic sky may be falling!

The accuracy of the experts expectation is the subject of another article so if you just said to yourself “what if the experts are not on their game when they print their best guess on the market” I hear you.   For now, let’s focus on what Friday’s job number meant.

The Facts

The jobs report which measures how many new jobs were created during the preceding month.  The most recent version revealed that the US economy added 175,000 new jobs in May 2013.   US unemployment also popped up to 7.6% (from 7.5%).  For a historical perspective on unemployment rates check out this 10 year chart from the US Department Of Labor Unemployment History.

If you weren’t a skeptic of the unemployment rate you will be after checking out the US Dept Of Labor’s definition of the jobless rate which includes this handy piece of info:
quite clearly, UI information cannot be used as a source for complete information on the number of unemployed.” – US Dept Of Labor/”How the Government Measures Unemployment”

For more informative info on how the government measures this key stat check out US Dept Of Labor

My focus is not to bring shame to the magic behind the number.  If this is how the US DOL is going to measure unemployment so be it, just be educated on where the number truly comes from.

Rates & Jobs

Phoenix Mortgage rates have always been influenced by jobs on some level.   If unemployment is rising one of the first weapons the Fed rips off its handy dandy batman like weapons belt is a rate reduction plan.  This time around however mortgage rates are much more intertwined into the Feds master plan to defeat economic crisis.  This time, the Fed very very specifically targeted mortgage interest rates (rather than just the Fed lowering the Fed Funds Rate and as a result pushing “Prime” down).   In short, the Fed has been spending billions on pressuring mortgage rates downward in order to help spark home buying due to the simple fact that the housing market was the epicenter of our generations economic crisis.

With that in mind now consider how the Fed’s latest comments that went something like this “we are going to start to stop supporting low mortgage rates” resonated with investors and the US home buyer.  Also, why did they say it?  In simple form the Fed was suffering from a case of early optimism and felt that based on a few recent economic reports that the US economy was/is on it’s way up.  The idea all along has been once the economy could stand on its own two feet the Fed would back out and stop “buying” low mortgage rates for everyone.   Great plan – as long as it is gradually rolled out and implemented in a methodical manner.

When the Fed jumped and made comments that they were backing off their support of mortgage rates the stock, bond and mortgage rate markets got rocked.  Mortgage rates jumped up 1% on the news in what felt like no time (approx. 2 weeks).   Every investors ear was and is tuned to the sound of any economic report that had the slightest shade of positive economic tone to it.  Even a slight indication of positive economic data now looks like verification of the Fed’s comments that the economy is improving and as such that they are done supporting mortgage rates.

The Fed tried changing their tune – was anyone listening to the music?

Some think the Fed pushed those “tapering down their mortgage rate support program” to the market to see what the reaction would be.  If true they pushed well and they saw. The reaction was a 1% ish increase in 30 year fixed mortgage rates.  In the weeks that followed the jump the Fed had members publicly state they were now considering to not taper their mortgage rate lowering actions and the market skipped right over these new and alternately angled comments as everyone was still fixated on the taper tone.

Time Will Tell & It is Only a Matter of Time

Let’s be real – the 3% mortgage interest rate range lasting as long as it has is akin to a 3rd grader being given a day full of recess versus just a half hour after lunch.  It’s great while it lasts but it has to end and sooner or later little Tommy will have to go back to the classroom.  We too will have to go back to normal interest rates.  That is not a bad thing.  If the Fed sticks to it’s plan, we will go back to “normal rates” (which to me means 4% – 5%) only when people have jobs and our economy is rolling along just fine.

So for now, plan for a mortgage rate market that moves in some sync to the unemployment rate/new jobs number as well as the Fed’s comments on it’s mortgage rate support program.  It will be bumpy (The Fed can be a bit emotional and knee jerky) but it SHOULD make sense and follow some type of logical economic pattern.  Yes 4% sounds brutal when put next to 3% but so do raw photos when placed next to photo-shopped versions of themselves!  Reality is the difference between the two rates (3% and 4%) is usually much smaller when it comes to the resulting monthly mortgage payment (especially when you consider the tax deductibility of mortgage interest on qualified home loans).

By Jeremy House

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