Jobs, Mortgage Rates & Home Affordability

A major reason that interest rates dipped even lower last week was due to the rather disappointing jobs report.

The headlines hit two big topics:

• Jobs, down 125k
• Unemployment, lower by .2%, down to 9.5%

Let’s break this down.  The unemployment figure is irrelevant.  The Bureau of Labor Statistics doesn’t include people who are not actively seeking work.  Not only are they unemployed, but if they’re not seeking work, that status isn’t changing anytime soon.

The net job loss is also sort of irrelevant.  Things weren’t great a month ago at +400k jobs and they aren’t as dismal right now.  That was temporary Census laborers.   Right now, the non-farm payrolls report is really just tracking the ebb and flow of government employees.

The real core issue is the net private sector job creation.   The one “bright spot” isn’t so bright.  That was 83k jobs created last month and 33k (net of a revision) in the month prior.  That’s 116k jobs in two months.  Not bad, but we need 125k new jobs per month just to keep up with population growth.

So how does this all relate to mortgage rates?  Very, very directly.

In the absence of jobs, there is no household income.  In turn, no consumer spending.  In turn, no economic growth.  In turn, mortgage rates stay low.

When you look at this in the context of home values, the connection is much more direct:  Job growth pushes home prices higher.

Home prices are higher than one year ago, but rates are lower–leaving us still at historical bests for home affordability.  If you want to watch home affordability, it seems like the jobs report is the most direct way to watch both mortgage rates and home prices.