Posted by We have all come to accept that the Arizona mortgage rate ride is currently slowly but surely climbing upward. In an environment where the Fed Taper is on and the economy is “improving” the expectation is mortgage rates will be higher later than they are today. While that general consensus will stay in place for now, the new jobs report that came out on 1/10/14 put that rate climb on hold. In fact, the climb grabbed some loose rocked and slipped back down Mt. Mortgage Rate a little bit.
As always, so much of the Arizona mortgage rate markets movement after a new jobs report is based on what the market thought the report would be. The report beating or coming in short of expectations is what really shakes up the mortgage rate market.
74k New Jobs Improves Rates
While experts were banking on there being 200k to 215k new jobs created in December 2014, there were only 74k new jobs. This was one of the biggest surprises the jobs report has produced in a long long time. Why do rates drop when the jobs report is much worse than expected?
Breaking down why bonds impact mortgage rates
Mortgage rates are based on mortgage bonds. Bonds provide investors with a secure and safe investment. Investors essentially have 2 choices when investing their money. They can put it in stocks or they can put it in bonds. Stocks are equivalent to an investor buying a small piece of a company. Companies and stocks do well when the economy does well. When the economy does not do well stocks typically do not do well. When a new jobs report reveals that far fewer jobs were created than “should have been” created it signals that the economy may not be doing so well. As a result, investors sell stocks and put their money safely into bonds. Bonds give a guaranteed rate of returned regardless of the economy and it’s performance. When investors pump money into bonds, bond prices go up. When bond prices go up mortgage rates go down!
It’s that simple…sometimes. The explanation above is a general outline regarding how the mortgage rate market responds to economic data. There are always exceptions to the rule but this, well it’s a great rule of thumb. Time will tell and hopefully over the long haul the economy continues to pick up steam. Of course the irony is that if you are currently purchasing or refinancing a home you are routing (for about 30 days) for the economy to struggle as it will help you get a lower interest rate!
By Jeremy House
Google