Will The Recovery Come Sooner or Later?

Mortgage rates began moving further and further downward, culminating in an announcement from Freddie Mac on December 3rd that, according to its Primary Mortgage Market Survey, both 30-year and 15-year fixed-rate mortgages had fallen to new record lows.  Economic data had been pointing to a tepid recovery at best, with some analysts concerned that we might dip further down than expected.  GDP had been revised down to 2.8%.  Manufacturing activity appeared to be slowing.  While most had expected some slowing in growth, fears of a painfully slow recovery helped drive rates to the new lows.

Then, two days later, we got what was the first surprising piece of economic news in quite some time.  According to the Labor Department, only 11,000 jobs were lost in November, and the numbers for October and September were revised lower.  Additionally, the unemployment rate shrank to 10.0%.  Mortgage rates immediately began climbing on this good economic news.  Of the two data points, the jobs lost number is the more important.  One of the critical factors to reach true economic recovery will be to stem the job losses the economy is suffering and to begin creating new jobs to get people back to work.  There is an expectation that the unemployment rate may go back upward as people, who had not been job hunting and therefore no longer calculated into the unemployment rate, begin looking for work again.

While it is refreshing to see that market forces are beginning to influence mortgage rates, we are still seeing a heavily subsidized secondary mortgage market.  With the Fed and various Fed governors reaffirming their support for continuing to support the mortgage markets, rates are likely to be held from climbing too much even if more signs appear of a quicker-than-expected recovery.  The employment picture may influence rates a bit more than usual over the next month or so.  If the tide has been stemmed, and jobs are created during December, we’ll start the new year with rates on a decidedly upward trend.