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The Impact of Employment Data on Home Buying


The official Employment Report is used as a huge barometer for interest rates, something that both lenders and potential buyers should watch carefully.

Strong Employment Report

When the Employment Report is strong coupled with a lot of created jobs, there tends to be an increase in hourly wage. If the unemployment rate is low and without labor force participation, there is a good chance that interest rates will struggle. When this occurs, the financial market takes strong job numbers and boosts forecasts for the economy in anticipation that growth will follow. In this instance, chasing down riskier equity market assets for big returns is probably safe.

At the same time, flight-to-risky runoff is drained by safe haven credit markets. Quickly, the number of Mortgage Backed Securities (MBS) is far greater than the number of interested buyers. In exchange, MBS prices drop and yields increase. In conjunction with yields climbing, so do mortgage rates, and when these climb, monthly mortgage payments increase, which could affect a buyer’s decision. Overall, home prices become more expensive.

Experts argue that economic forecasts are already priced into markets before the report. If that is true, the job report release has zero effect on activities of trading if results fall in line with the forecast. A prime example occurred recently, when the numbers were close to the forecast and interest rates went unchanged.

Financial Market Response

On occasion, reported numbers are much stronger or weaker than predicted. When this happens, the response from financial markets is dramatic. If a job report comes back unexpectedly weak, a rally in credit markets could be triggered, helping drive rates lower. However, if the report is stronger than expected, rates usually rise.

In the past, the unemployment rate by itself could move the market. Today, there are many factors within the report working together to force movement. Currently, everyone is watching the Federal Reserve, trying to determine when interest rates will rise and which factor will be the final tipping point.

Many people who have studied economics pertaining to the housing market feel the unemployment rate no longer has the same muscle as before. Initially, the rate was an economic indicator, but now, it appears to be more of a political tactic. For that reason, it no longer has the same credibility for moving the market as it once did.

The bottom line is that potential homebuyers need to recognize that many things are taken into consideration when purchasing a home, including interest, which is impacted by employment data and many other factors. For future buyers, this information can be used to determine the best time to buy based on the movement of the interest rate.

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