Jobs Report Crushes Interest Rate Predictions

This week’s Interest Rate Predictions were watching today’s jobs report.   First Friday of the month we get the Bureau of Labor Statistics’ “Non-Farm Payrolls” report from the prior month.

It is a major factor in mortgage rates, particularly in today’s economy.   A hot jobs report would have shot mortgage rates higher.

It was anything but a hot jobs report.  According to the government, 431,000 jobs were created in May, but of those new jobs, 95.4% represented temporary staffing for the 2010 Census.  The number of private-sector jobs created fell well short of expectations.   Although the unemployment rate fell, these jobs are temporary.  This was a beyond dismal jobs report.

While a 500k net jobs gain could have sent mortgage rates soaring, only 5% of the 431k new jobs were private sector.  Mortgage rates are dropping.  Again.  The news drives mortgage rates.

The fundamentals say the recession officially over and growth is returning to the U.S. economy.  That eventually means jobs, but these record-crushing worker productivity readings mean that less people are accomplishing more work.  Technology is fueling growth, but slowing job growth.

Still, eventually, job growth means that home affordability, still at record levels,will drop.  Here is why:

1. As the number of working Americans increases, so should total consumer spending
2. As consumer spending increases, so should a return to risk-taking on Wall Street
3. As risk-taking returns to Wall Street, bond markets should start to lose

The end result of this is that mortgage rates rise.  That’s half the equation.

The other half is that jobs growth equals job security.  Renters are more apt to buy.  The 27-year old moves out of Mom and Dad’s basement.  Homeowners think about up-sizing.  Competition flows to homes, home prices move higher.

When?  That’s the $64,000 question.