30-year fixed mortgage rates have been in a holding pattern for several months now - and that could be a break for mortgage shoppers.
While the big picture story is that 30-year fixed mortgage rates turned around and started to rise in 2013, the meaningful changes in those rates all occurred between early May and late June. Since then, rates have fluctuated but are essentially where they were six months ago.
Now, a disappointing employment report is the latest thing that could break the rising-rate narrative.
The essence of the rising rate narrative was that since low mortgage rates were closely tied to the weakness of the economy, a strengthening of the economy would spell the end of low mortgage rates. Stronger growth would create greater demand for capital, lead the Federal Reserve to end its quantitative easing program, and possibly even create inflation pressures - all of which would put upward pressure on mortgage rates.
For much of 2013, that narrative seemed to be playing out neatly. The Bureau of Economic Analysis (BEA) reported that economic growth improved in each of the first three quarters of the year. The Bureau of Labor Statistics (BLS) reported that employment growth averaged 213,500 jobs from August through November, with 200,000 jobs being a reasonable benchmark for strong employment growth. Then, perhaps most dramatically of all, in December the Federal Reserve announced that it had seen enough signs of economic recovery to begin tapering off its quantitative easing program.
Then, bad news struck like a New Year's hangover, as the first important piece of economic news of 2014 was a major disappointment. New jobs growth for December was reported at just 74,000 jobs, the worst month for employment growth since early 2011.
3 Key Dates
This leaves mortgage rates essentially holding their breath. According to mortgage finance company Freddie Mac, 30-year fixed mortgage rates slipped back by 10 basis points in the week following the disappointing employment report, falling to 4.41 percent. That is about where they were at the end of last June. If the apparent improvement in the economy proves to be yet another false start, expect mortgage rates to stay in this holding pattern quite a while longer.
So which way will mortgage rates go in 2014? Three dates within the next month could provide an early clue:
- January 25. This is when the Federal Open Market Committee, the sub-group of the Fed which decides on interest rates, will conclude its next meeting. This meeting would have attracted extra attention anyway due to the changeover from Ben Bernanke to Janet Yellen. The drama is heightened by the fact that this is the first meeting since the Fed began to taper off of the quantitative easing program, and now the weak jobs report adds a new twist. The Fed could further taper off that program, could leave it at its current, slightly-reduced level, or even restore it to its former level of $85 billion a month in bond purchases. The jobs report is disturbing but not fatal for the economy, so the cautious thing to do would be to leave quantitative easing where it is for now, and the Fed is nothing if not cautious.
- January 30. This is when the BEA releases its initial estimate of fourth quarter economic growth. After falling to 0.1 percent at the end of 2012, the real annual growth rate of US gross domestic product progressed to 1.1 percent, 2.5 percent, and then 4.1 percent over the next three quarters. Did the economy build on that improvement in the fourth quarter? Don't forget that the fourth quarter included the government shutdown and, apparently, a surprisingly weak job market smack in the middle of the holiday season. Improvement on (or even matching) the third quarter's 4.1 percent growth rate seems unlikely, but January 30 will provide the answer.
- February 7. This is when the BLS will make its report on employment growth for January. Was December's weak performance an aberration? Some have tried to dismiss it as a function of bad weather, but the weather is always pretty bad in December, yet the economy managed to produce more than 200,000 new jobs in each of the previous two Decembers. If January's job growth is closer to this past December's 74,000 figure than to the 200,000 threshold, it will be a sign that the economy has suffered yet another relapse.
Remember, a stronger economy will likely mean higher mortgage rates, while repeated signs of weakness could spell a return of super-low mortgage rates in 2014. Mortgage shoppers should keep an eye on the above dates to find out what the next twist in the mortgage rate narrative is going to be.