Mortgage interest rates increased sharply on Friday, as bonds sold off big time following the release of May’s Non-Farm Payrolls data. The U.S. Bureau of Labor Statistics reported today that job growth accelerated in May, as the economy added 280,000 jobs, a very strong figure compared to the consensus expectation of 220,000. Job gains were recorded in several sectors, including profressional and business services, leisure and hospitality, as well as health care, while in the mining industry employment declined in May.
The headline unemployment rate edged up to 5.5%, according to findings from the Bureau of Labor Statistics. Also, March’s and April’s jobs data were revised, and it appears that employers created 32,000 more jobs in those two months, than previously estimated. On the other hand, wage inflation ticked up a relatively healthy pace, with the average hourly earnings rising by 8 cents, or 0.3% in May, compared to the prior month’s data. Economists had projected an increase of 0.2% in wages for May. While Friday’s stellar employment report sparked a selloff in the bond market, later on bonds bounced back somewhat, though they remain in bad shape. With that in mind, comparing to yesterday’s mortgage rates, chances that you will see higher rates at the majority of lenders on Friday.
The aforementioned strong jobs report sent the yield on the 10-year benchmark treasury note to its highest level of the year. The 10-year treasury yield increased to as high as 2.44% following the release of the employment report, the highest intraday level since October 2014.
The current jobs data is a significant one, which shows that the U.S. labor market is picking up momentum after a slow start in the beginning of the year. It also bolstered speculation among investors, that the U.S. central bank may move closer to tighten its monetary policy for the first time since 2006. However, it’s highly unlikely that this report itself would prompt the Fed to raise short-term interest rates starting in June. The organization wants to be sure, that the economy is gaining traction, before determining the timing of a rate hike. Low inflation level is still a problem and the majority of economic reports, including some key manufacturing and housing market data, that we have seen in the last few weeks were mixed at best. With that said, we believe that the likelihood of a rate hike in June or even July seems low at the moment, unless we see a series of impressive economic data in the coming weeks. Currently, the consensus expectation is that the rate hike will take place in September.
In related news, a top Fed official said, that a lift in short-term interest rates seems appropriate later this year, despite weaker-than-expected economic growth in the second quarter. President of New York Federal Reserve William Dudley said in prepared remarks on Friday, that the timing of an interest rate hike depends on the economic outlook. Dudley expects the economic growth to pick up going forward and the inflation to rise above the target level.
Yesterday, Freddie Mac released its weekly national Primary Mortgage Market Survey (PMMS), which showed that average interest rates remained near 2015 highs in the week ended June 4, 2015. According to the federal agency’s latest data, the 30-year FRM averaged a rate of 3.87%, unchanged compared to the prior week’s data. The current mortgage rate on this type of loan is down by 27 basis points from the same time a year ago. As far as the 15-year fixed mortgage is concerned, the average rate on this loan came in at 3.08%, a decrease of 3 basis points compared to the previous 3.11% that it held before.
So what’s next for mortgage rates? It’s difficult to predict, but one thing is for sure: this was a very depressing week for interest rates. The bond market took a heavy beating, suffering selloffs almost every day of the week and seeing yields peaking at 2015 highs. Ongoing events and headlines from Europe had a big impact on the U.S. bond market movement this week, which eventually resulted in higher mortgage rates. If you haven’t locked a rate ahead of the NFP data, you may want to float to next week and see where things go. On the other hand, if you are averse to risk and prefer to lock a rate while still in the historical low range, it’s better to take action sooner rather than later.
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