The August jobs report fell way short of expectations, likely to the Delta variant. Here's what that means for homebuyers and refinancers.
The window to buy or refinance a home with an exceptionally low interest rate may stay open a little longer. An August jobs report looks more like Olive Oyl than Popeye.
Nonfarm payroll employment increased by just 235,000 jobs -- nearly a third of the 720,000 expected, according to the U.S. Bureau of Labor Statistics.
August’s was the weakest jobs report since January and was especially underwhelming after the economy added over a million jobs in July. In a TV address, President Biden cited the Delta variant as a main contributor to the hiring slowdown. Others noted that August employment data being difficult to gather as many Americans take vacations.
Despite underwhelming job gains, the unemployment rate fell to 5.2% and remained in line with expectations.
For homebuyers and homeowners looking to refinance, the big question is how the report will impact mortgage rates.
The Federal Reserve continues to induce artificially low mortgage rates through it’s purchase of Mortgage Backed Securities (MBS), but that can’t last forever.
If the economy takes off, the Fed has more reason to pull back stimulus, which would result in higher mortgage rates.
The Fed set the goal of “substantial further progress” toward robust employment and 2% average inflation back in December. With core inflation running above 3% since April, robust employment is the only hurdle left to clear before it begins tapering its MBS purchases.
“The main focus in Washington, with regards to the Fed’s monetary policy and tapering plan, has been on jobs. I think they’ll continue to hold until they see some more strengthening there," said Mike Blake, President Capital Markets at Fairway Independent Mortgage Corporation. "The other thing they will be keeping their eye on is the current surge in Covid cases, hospitalizations, and the potential impact to the economy.”
Following a very strong July job’s report, it was widely believed that the Fed would announce a plan to reduce its asset purchasing by the end of year -- perhaps as early as its September 21-22 meeting. Based on the 2013 “Taper Tantrum,” the announcement alone could push rates higher.
The weak August jobs report reduces the already slim chances of a September announcement, but the door is still wide open for November or December.
That amounts to a little extra wiggle room for people looking to lock in low mortgage and refinance rates. But it’s unlikely the August report alone is enough to derail the taper train altogether.
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