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June Employment Data Strong, Mortgage Rates Increase

Welcome back after the long weekend! With all the excitement of the long 4th of July weekend, you would be excused for overlooking the release of June’s employment report last Thursday (July 3rd).

Payrolls added 288,000 jobs in June, a robust number that falls in line with 2014 employment growth thus far. Bill McBride, writer of the popular economics blog Calculated Risk, noted that the report was a positive one:

2014 is on pace to be the best year for employment gains since 1999.

Total employment has reached 415,000 above the pre-recession peak, though at 59.0%, June’s employment-population ratio came in below the pre-recession high of 63.4%. Population demographics have shifted due to people leaving the labor force (seniors) or delaying entrance (“millenials” staying in school longer).

The report is a positive one for 2014 U.S. economic outlook. Last week, we discussed the poor Q1 GDP data that alarmed markets. We wrote:

Consensus seems to be that the poor reading was a mix of seasonal factors and bad luck, and that the economy is stronger than the contraction would indicate.

Meanwhile, the Dow Jones Industrial Average has surpassed 17,000 for the first time. All in all, the economy seems to be humming along.


Mortgage Rates…

July 7 KB 30-Year FixedMortgage rates had taken a nice little dive the previous week as the market digested the poor GDP news. The positive employment news then nudged the 30-year fixed back up to its previous levels.

[Click here: our July 3rd mortgage rate update reflects the upward movement]

Recall that the 30-year fixed movement correlates to bond market performance – specifically the 10-year U.S. Treasury bond.

[This clear, informative articles explains why long-term U.S. Treasury bonds correlate to the 30-year fixed mortgage rate.]

U.S. Treasuries tend to move inversely to the stock market. In times of confidence, stocks climb as investors seek higher yields. On the flip side, uncertainty influences caution, and investors will seek “safe” investments like U.S. bonds. As bond markets see more demand, mortgage rates feel downward pressure.

What does this mean for mortgage rates today?

As the U.S. economy continues to strengthen and the Federal Reserve continues to leave the bond market, mortgage rates will be free to rise. Currently, rates are still near their lowest level in a year. The 30-year fixed is just 1.0% higher than its lowest measure ever. Now is a good time to take advantage of the low-rate window.


This week…

… will be pretty quiet for data. Keep your eyes open for FOMC minutes on Wednesday and weekly jobless claims on Thursday.


Central Coast Lending is a California mortgage broker and direct lender based on the Central Coast of California in San Luis Obispo County. Call us today at 805.543.LOAN or email to set up a free pre qualification. We are The Mortgage Experts: ask us anything!

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