Weekly Economic Update - Crossing the Line

It may have felt like the era of low interest rates just ended, but as the 30-year conforming mortgage rose above 5% for the first time in seven years last month it was really just a blip in a long history of lower but usually much higher rates. Then too, home prices now appear to be moderating their long run-up, so maybe it will all even out.

The September Employment Situation report was a bit of a mixed bag – unemployment fell to a 49-year low while only a modest number of jobs were created. Forbes calls it “confusing.”


The week’s headline was the announcement by the Mortgage Bankers Association (MBA) that interest rates for the 30-year conforming mortgage had crossed the 5.0% line, with FHA and jumbo loans close behind. All the rates quoted by MBA (which differ slightly from Freddie Mac’s) were the highest in at least seven years. Rates have been at record low levels for so long that many may not realize how rare that really is. For example, few remember when rates climbed into double digits in late 1978 and stayed there for nine years, peaking at 18.63% in the fall of 1981. In fact, from 1971 through 1999 rates averaged 9.57% and since then have averaged 5.03% (only .02% lower than last week’s reported rate of 5.05%).

It looks more and more as though higher rates could be offset a bit by lower home prices. Black Knight reported that its Home Price Appreciation Index (HPAI) declined in 22 of the 100 markets it tracks in July. The national HPAI rose for the 19th consecutive month, but the gain was a modest 0.22%. It was the smallest gain in any July, typically one of the strongest months, in seven years.

Price gains showed the most deceleration on the West Coast and in Florida and some instances were striking. San Jose’s 24% annual appreciation in February had slowed to 18% by July and prices actually fell for the second straight month. That was true in Seattle as well where appreciation has slowed from 15% in February to under 10%. San Francisco’s prices declined for the first time in nearly two years and its rate of appreciation has cooled by more than 2 points. Oxnard, Bakersfield and San Diego also posted price drops of around 0.4% during the month.

A Case of Confusion

That was how Forbes described the September Employment Situation Report. An unexceptional 134,000 jobs were created, however, unemployment dropped 0.2 percentage points to 3.7%, a 49-year low. The low rate was largely due to revisions to the two earlier months, August alone gained 69,000 jobs. There was also a slight slowing in wage growth, down 0.1% from August’s monthly and annual figures to 0.3% and 2.8%, respectively. There were 23,000 construction jobs added during the month--always good news for builders--but retail took a hit, shedding 20,000 jobs.



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