Employment: It Plays a Big Role in Mortgage Rates
BySome of the recent economic data that we have all seen seem to point that the unemployment rate is starting to get better, and that the recession is over. As of the end of October Indiana was slightly better, 9.4%, than the US average of 9.5% (according to the Bureau of Labor Statistics). The unemployment numbers being reported are much lower than the true number of unemployed. The important thing to remember though is this is the way the numbers have been reported for years, the discrepancy is much more noticeable now because of the sheer number of unemployed.
The unemployment issue really hits home for everyone in the mortgage and real estate field since consumer spending makes up two-thirds of the economy. Typically as the economy improves it helps stocks and hurts bonds. A lot of people will incorrectly tell you that mortgage rates can be determined by the 10 year treasury. The true measure of where mortgage rates are headed is based off Mortgage Backed Securities (MBS). MBS carry a higher risk since there is no guarantee, unlike the 10 year Treasury that is 100% guaranteed to be paid back, that the money will be repaid, thus carrying a higher price to compensate. As Bond Yields, bond rates, on Mortgage Backed Securities go up so does mortgage interest rates. Be careful not to confuse the bond yields or bond rates with bond prices, as bond prices have an inverse relationship to interest rates. To delve deeper into how mortgage rates are determined check out this post by Adam Quinones.
Free budget software – Mint.com – Video by Mint. If you can’t view the video please click here.
This video puts a funny spin on how the numbers are generated of who gets reported as unemployed.
President Obama is planning to use much of the untapped TARP (Troubled Asset Relief Program) in an attempt to create jobs. Initial estimates put the amount of money to be spent at $200 billion. Any government intervention is not likely to make any change to unemployment, hire a $30,000 worker for $2000 tax break, and possibly only to extend the time for recovery. The true problem lies in that creating millions and millions of meaningful jobs is something that only the private sector can do. The fact is that to really improve employment will take a dramatic increase in the Gross Domestic Product (GDP), just to get under 10% will likely take Real GDP growth of between 3 & 4%.
So, after watching the video and reading all this you are probably asking, “why do I mention this negative new, when the unemployment number improved.” Well, I really liked the video and wanted to share it, but I also want everyone to realize that interest rates are not going to stay this low for long and now is the best time to act.
Right now there can be a very real benefit to those:
- Purchasing a home, since rates are at historical lows the monthly payment is low
- Low rates mean more potential borrowers can afford a more expensive house a seller has on the market
- If you purchased or refinanced over a year ago, you could benefit from today’s low rates
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I’m a mortgage broker and banker. I employed to work for one from the largest banks inside the nation and to become truthful our fees and charges were so very much higher than brokers. Big banks commit money on advertising and spend salaries.
Although this topic can be very touchy for most individuals, my opinion is always that there has to turn out to be a middle or widespread ground that we all can locate. I do appreciate that youve added relevant and intelligent commentary in this article even though. Thank you!