Mortgage market braces for January employment report

2/7/2014 12:24:00 PM

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ADP, a payroll processing company, recently released its January employment report, which revealed that 175,000 private sector jobs wereadded to the economy during the first month of the new year. This figure is well above the Department of Labor's December report, which showed that only 74,000 jobs were added in the month. The January estimate is more in line with the average seen over the last year. Economists hope that the cold weather may have simply put a damper on hiring in December and won't have any effects on the Department of Labor's national report due on Feb. 7.

The employment report is an important indicator for what the Federal Reserve might plan to do regarding its fiscal policy. After two days of meetings in January, Fed officials declared it would further reduce stimulus spending to a total of $65 billion in February. The announcement was somewhat surprising after the weak December employment report. The Fed's stimulus spending at a rate of $85 billion per month has helped keep interest rates near record lows since 2012. Many economists fear that tapering bond purchasing could result in higher mortgage rates and decreased affordability in the housing market.

Mortgage market reaction
The mortgage market has not responded as predicted, however. Interest rates have recently declined to their lowest levelssince late last year, giving hope to homebuyers looking for a low-cost mortgage in 2014.

According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage reached 4.23 percent during the week ending Feb. 6. In the previous week, the average was 4.32 percent. Mortgage rates have increased since a year ago, when the average was 3.53 percent for the same loan term, but they are still relatively low on a historical standard.

The average rate for short-term home loans also fell during the first week of February, with a 15-year fixed-rate mortgage coming in at 3.33 percent. The average in the week before was 3.4 percent. During the same time a year ago, the rate was significantly lower, at just 2.71 percent.

The drop in rates is likely due to less than favorable housing market data. Home sales and prices declined from their high rates of growth at the end of the year, though this may be due to seasonal changes rather than economic influences. December weather had an impact on a number of industries and economic reports are expected to rebound later on this year.

"Mortgage rates fell further this week following the release of weaker housing data," said Frank Nothaft, vice president and chief economist with Freddie Mac. "The pending home sales index fell 8.7 percent in December to its lowest level since October 2011. Fixed residential investment negatively contributed to GDP in the fourth quarter for the first time since the third quarter of 2010. Also, the Institute for Supply Management reported a significant slowing in growth in the manufacturing industry in December than the market consensus forecast."

Contact the Federal Savings Bank, a veteran owned bank, to explore affordable mortgage options for a new home purchase.