Mortgage interest rates are in decline after a dismal jobs report that reflected net zero job growth after private-sector gains were canceled out by government losses. Rates are lower across the spectrum of loan types, from 1-year ARM loans to 30-year fixed mortgages. Economists believe the rates will stay low or even drop lower if the economy continues to struggle, with some speculating that the U.S. may be in store for another recession. While this is bad news for anyone looking for a job or trying to sell a home, it is the perfect climate for the few potential buyers still in the market. The toxic environment is forces home prices down and with interest rates bottoming out it is the perfect time to buy. For more on this continue reading the following article from The Street.
Mortgage rate watchers are asking just one question: How low can interest rates go?
The market has had five days now to digest Friday’s horrendous U.S. jobs report, in which data showed a net gain of 17,000 private sector jobs was offset by a loss of 17,000 government jobs in August. The result? Zero net job growth — and growing alarm among economists that the U.S. economy is sliding back into recession.
The jobless rate has serious ramifications for numerous sections of the economy, not the least of which is the slumping U.S. housing sector. Mortgage rates are already shrinking thanks to the harsh economy, as banks and lenders keep rates low to attract the dwindling number of Americans who are actually shopping for a new home.
A quick glance at the BankingMyWay Weekly Mortgage Rate Tracker shows lower rates across the board:
- One-Year ARM: 3.283% this week, 3.919% last week
- Three-Year ARM: 3.224% this week, 3.69% last week
- Five-Year ARM: 2.957% this week, 3.171% last week
- 15-Year Mortgage: 3.535% this week, 3.656% last week
- 30-Year Mortgage: 4.291% this week, 4.306% last week
Typically, lousy economic data keeps mortgage rates lower.
There are two big reasons for that:
The Federal Reserve Bank will likely be compelled to keep interest rates lower to spur lending and consumer buying power. Mortgage rates are tied to the U.S. prime interest rate, and if the Fed keeps that rate down mortgage rates will fall as well. A weak jobless rate is just about the surest sign to officials that the economy is sluggish and needs lower borrowing rates for businesses to grow and hire more workers.
Investors see a weak jobs report and draw the same conclusion (as do consumers). The more Americans out of work, the lower the economic growth. And the lower the economic growth, the more investors turn to supposedly "safe haven" investments such as U.S. Treasury bonds. In fact, the benchmark 10-year Treasury bond offers a meager 1.939% return today. That’s a remarkably low rate, but that’s what happens when investors pour cash into bonds — the rush to a safe haven drops rates down, and mortgage rates follow suit.
By and large, zero job growth is one of the worst indicators the U.S. economy can see. With fewer Americans with disposable incomes, and less tax revenue for the U.S. government, economic growth is effectively stalled at the source.
That’s bad news if you’re trying to sell a home — fewer Americans have the urge to buy in such a toxic housing environment — but it’s good news if you really want a new home. With the 30-year mortgage rate less than 4.3%, and home prices in steep decline, there probably has never been a better time to buy a home.
But only if you have the money — and the good credit — to get the job done. An economy that produces no jobs on a net basis is a big obstacle to getting that job done.
This article was republished with permission from The Street.