From Stuart Crawford at V.I.P. Mortgage:
We experienced a WILD RIDE in the mortgage market last week. A positive outlook for the economy caused investors to shift assets from bonds to stocks, andFriday's strong labor market report highlighted this movement. Due to this, mortgage rates ended the week higher.
Investors were shocked by the strength of Friday's Employment data. The economy added 257K jobs in January, exceeding expectations by nearly 22,000. The bigger news was that upward revisions to prior months added another 147,000 jobs. Monthly job gains over 200K are considered strong, and the economy has added an average of 336K jobs over the past three months. Stronger growth increases expectations for future inflation, which is negative for mortgage rates, and mortgage rates rose after the announcement.
Another component of the Employment report caused inflation expectations to increase as well. Average Hourly Earnings (an indicator of wage growth) was 2.2% higher than one year ago, which was much higher than had been expected. Some of the increase in wages was due to higher minimum wage laws which went into effect in January in several states, so this portion of the wage growth will not be repeated in future months.
The Unemployment Rate unexpectedly rose from 5.6% to 5.7%, but this was due to a large increase in the size of the labor force. The Unemployment Rate measures the percentage of people who are actively looking for work (the labor force) but cannot find a job. In January, many people began to seek jobs who had not previously been searching. This is also a sign of an improving labor market.
***Remember in prior emails I mentioned that NOW was the time to buy or refinance due to the “dip” in rates? Now we are seeing a slight upward trend again, and the jobs data is supporting mortgage rates to trend higher into the future (albeit we expect this to be gradual with minor dips along the way).***
The most significant economic report this week will be Retail Sales on Thursday, as Retail Sales account for about 70% of economic activity.
Stuart can be reached at 480.776.2954