Mortgage Rates Will Top 6 Percent When Job Losses Cease

For the first week of October, the average rate on a 30-year fixed mortgage was 4.87 percent, down from 4.94 percent last week. Despite this low level, some home buyers are waiting for even lower rates. Forget about it! Even though rates may move a bit lower in the short run, I expect rates to rise very quickly once the economy, as measured by job prospects, improves. That’s right, if you want to see where mortgage rates are going, just watch the job market. At the beginning of the recession in December 2007, annualized job growth was 1.4 percent and the 30-year fixed rate mortgage was 6.1 percent. At the depths of the recession in April of 2009, annualized job growth had plummeted to -5.6 percent and the 30 year mortgage rate had sunk to 4.81 percent. Today job growth is still negative at -2.3 percent and mortgage rates have rebounded slightly to 5.06 percent.

I expect mortgage rates to again top 6.0 percent when the nation begins adding jobs. Thus expect two potentially harsh outcomes when the labor market turns around. First, the monthly payment on a $100,000 home will rise by more than $50. Second, this will signal the end to the high prices and low yields on long term U.S. Treasury bonds that determine mortgage rates. So if you have a large share of your savings in these bonds, either directly or via mutual funds, put your money somewhere else to avoid heavy losses when the labor market improves. Ernie Goss.