The Labor Department just revised their figures for the 12 months through March and erased 818,000 jobs from the previously reported labor market. This means employers were adding significantly fewer jobs during that period than what was being reported by the Labor Department. To put that number into context, according to my calculations, the number of jobs being revised is equivalent to the population of the 18th largest city in the United States.
Why should I care about that? For the last couple years, the Fed has refused to lower the interest rate because the labor market is too strong. In other words, we have been living with interest rates higher than the economy can support based on inflated numbers. This is a big deal in my opinion. So, what will happen now? You would expect the Fed to lower rates since job growth numbers were actually pretty normal, but I don’t think they will correct them very quickly. The current Fed is very slow to react.
We were expecting a small adjustment in September and I believe that will still happen, but that was expected because this is a presidential election year and lower rates will help the economy look stronger when it comes time to vote. Mortgage rates tend to follow 10-Year Treasury Rates, a bond that is backed by the U.S. government. The 30-year fixed-rate mortgage has traditionally been an average of 1.7% higher than the 10-year Treasury yield and is very consistent; however, over the last couple years the spread has been high at around 2.9%. That spread has come down recently, though.
This news that the labor market isn’t near as strong as we were being told could have a positive effect on mortgage rates, but likely over time. Remember, these are my opinions and I can’t predict the future, but I can tell you that we have been living with abnormally high interest rates because of bad numbers. We may never know who was behind the bad information. I also want to point out that when I say, “abnormally high interest rates,” I don’t mean that they were historically high. The average 30-year mortgage rate over the last 50 years is over 7%, so in that context, the recent rates have been pretty average. However, they didn’t have to be that high and were likely hurting the economy overall.
Hopefully, we are in for a brighter economy in the future. Stand by!
Norwalk IA Real Estate –
Jon Niemeyer, Broker/Owner/REALTOR® at EXIT Realty North Star. I list and sell real estate in Central Iowa including Norwalk, Des Moines, West Des Moines, Cumming, Indianola, Carlisle, Waukee, Urbandale, Grimes, Clive, Johnston, Ankeny, Altoona, and Pleasant Hill in the Counties of Warren, Polk, Dallas, and Madison. Call
Jon Niemeyer at
515-490-4675.