• Dimitri Petit-Frere

Economic Update October 11, 2021

Sorry, we missed last week’s update, but we are back with fresh insights and perspectives for this week.

  1. Job numbers have continued to disappoint but economist are hopeful that as the recovery gains steam, eventually hires will pick up

  2. Mortgage rates rose this week above 3%, which impacts how much borrowers pay monthly for a home. A small increase could lead to as much as $150 more per month

Disappointing Employment Statistics

As a result of a severe shortage of workers, the U.S. economy created only 194,000 new jobs in September. According to the Bureau of Labor Statistics, Friday’s unemployment rate dropped to 4.8 percent from its previous 5.2 percent. The Bureau of Labor Statistics said Friday that the unemployment rate fell to 4.8 percent from 5.2 percent. Future months should be better because Covid-19 cases are decreasing. We are still experiencing a pandemic.

The report’s positive feature is the 0.6 percent increase in hourly wages. The market is watching wage growth closely as it struggles with the noise surrounding skyrocketing inflation, supply chain bottlenecks, and what the Fed really means when they say that inflation is “transitory”. Wage growth has been volatile for most of the pandemic-recession recovery. The dramatic fall in the leisure and hospitality industry caused earnings data to be distorted. Millions of service-sector workers, low-wage, were laid off due to Covid-triggered shutdowns. Economists believe that August’s big loss could be due to flat leisure and hospitality jobs. These jobs had contributed on average 350,000 new jobs per month over the past six months.

Mortgage Rates Have Risen to 3%

Mortgage rates rose as expected after the Federal Reserve indicated that it will begin to reduce the support it provides to the U.S. Economy. If you don’t factor in rising interest rates to your budget, you might be left behind. Today’s rate means that the monthly mortgage payment for a median-priced home is $150 more than it was one year ago. $25 of the increase is due to higher rates, and $125 to higher home prices.

The mortgage rates rose to a level above 3% for only the second time since July. You can feel the pinch. Freddie Mac reports that the average 30-year fixed-rate mortgage was 3.01%, an increase of 23 basis points over the previous week. The average 30-year fixed-rate mortgage was 2.8% a year ago. In contrast, the average 15-year fixed-rate mortgage rose 13 basis points, to 2.28%. Average mortgage rates for 5-year Treasury-indexed adjustable-rate mortgages were 2.48%, an increase of five basis points over the week before.

The increase in mortgage rates is a result of the steepening 10-year U.S. Treasury yield, which rose to its highest level since June. The Federal Reserve’s last week’s announcement prompted both the rise in interest rates and the decline in the 10-year Treasury yield. In an effort to stimulate the economy, the central bank indicated that it will begin to reduce the asset-buying activity it started last year. Central bankers indicated that an interest rate hike could be possible in 2022. 

Mortgage-backed securities are among the assets the Fed has been purchasing on a monthly basis. These purchases by the Fed helped to inject a lot of liquidity into the mortgage markets, which enabled lenders to lower interest rates. The Fed’s purchase volume is expected to decline in the fall, i.e. Lenders will have to raise rates as the Fed’s purchases are expected to decrease in later fall (i.e. “tapering”). This could have ripple effects on the wider housing market. Mortgage rates are still low, which is supporting demand. If rates rise, buyers will be less inclined to buy once the Fed stops tapering.

https://www.morningstar.com/news/marketwatch/20211003198/mortgage-rates-jump-above-3-creating-pressure-for-home-buyers

https://www.nbcnews.com/business/economy/u-s-economy-added-just-194-000-jobs-september-vs-n1280992

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