Upcoming Economic Data and the Impact to Bay Area Mortgage Rates

Posted by Arjun Dhingra

With the election just around the corner, there is a lot of speculation as to which candidate will have an impact on interest rates with their policies and/or their direct commentary. While a case for higher or lower rates can be made when analyzing what both party candidates are saying, one thing is always a definite when it comes to impacting mortgage rates in the Bay Area every month and that is the early month economic data reports. Specifically, the jobs report, which is done on the first Friday of every month.

Last month, the Non-Farm Payrolls report showed 151,000 net new jobs added to the economy. This was less than economists expected and caused interest rates to dip just slightly. For October, analysts expect around 170,000 jobs to have been added this last month. This is an important number for Bay Area housing watchers to know for a few reasons.

If the actual job creation and figure is much higher, mortgage rates could rise. Jobs are what drive an economy because of what all comes with it. More people working, more people earning, more people spending (since we aren’t a society of “savers”), and more confidence throughout the marketplace. Healthy economic outlook could spur the Federal Reserve to raise its benchmark rate the next time it meets, causing a ripple effect through interest rate markets, including those of mortgage rates.

The Bay Area comes into focus when such data is reported because it is a hotbed of employment and labor force. The entrepreneurial boom fueled by technology that continually outpaces itself quarterly has been in part responsible for job growth in the national plane.

In September, the Federal Reserve voted to hold rates steady. But three-in-ten voting members wanted to hike rates, and commentary from some of the Federal Reserve Governors over the last 30 days has shed light on the fact that others may be feeling the same way. Regardless, the next meeting convenes in November. The momentum seems to be swinging toward an upward rate adjustment, and robust job creation could sway more Fed members to the “hike” circle by the end of 2016. Again, per my previous posts, it is helpful to remember that the Federal Reserve raises/lowers key interest rates (Federal Funds Rate, most specifically) that are not tied at all to mortgage rates, but rather cause mortgage rates to behave in a similar suit. The rate raised or lowered by the Fed, however, impacts rates for credit cards, auto loans, and lines of credit on homes (which are becoming more common in Bay Area markets now).

More than 14 million jobs have been added in the economy since 2010 and the unemployment rate has dropped below 5.0 percent. But not every aspect of the recent job reports have been sunshine and rainbows. The labor participation rate has been in decline – meaning there are less people looking for work, revealing that therein discouragement amongst some who have been out looking for employment. Perhaps most concerning, is that wage growth appears to have stalled, not just in the Bay Area but nationally. This is important, because stagnating wages tend to stagnate consumer spending, which can stave off inflation. Inflation works against low mortgage rates. So lack of inflation, therefore, can work in favor of lower mortgage rates.

This is why the upcoming release of the Non-Farm Payrolls report this Friday has relevance to today’s mortgage Bay Area rate shopper — the report may spur a movement of mortgage rates starting to jump in the coming weeks, so stayed tuned for more on this from us.

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