Mortgage rates soar following jobs report

July 12, 2013

| MoneyRates.com Senior Financial Analyst, CFA

Mortgage rates resumed their upward march this week, jumping nearly a quarter of a percentage point in the wake of an encouraging jobs report from the Bureau of Labor Statistics.

While the continued climb in mortgage rates isn't great news for home buyers, the rise in rates suggests optimism in the economy may be growing -- a trend that could eventually benefit depositors.

Pressure from the job market

At 4.51 percent, current mortgage rates are more than a full percentage point higher than they were two months ago. This is largely because optimism about the economy is growing, a factor whose influence could increase because a stronger economy would mean an end to Fed intervention to keep interest rates low.

The latest sign of improved economic strength came in the form of the Employment Situation Report for June, which was released last Friday by the BLS. This report showed that 195,000 jobs were created in June, an improvement over the average of 182,000 per month that were created throughout the previous year. In addition, there were large increases to the job creation estimates for the prior two months: An additional 50,000 jobs were added to April's number, and 20,000 to May's.

These job creation statistics are especially significant given the still-delicate state of the economic recovery. They not only show growing confidence from employers, but they also represent the creation of new weekly paychecks that will add fuel to the economy.

What's next?

The employment report was especially reassuring because it came on the heels of a disappointing downward revision of the estimate of real GDP growth for the first quarter. That revision saw the estimate of real GDP drop from 2.4 percent to 1.8 percent. However, by now the first quarter is rapidly receding in the rear-view mirror. The jobs data from June is not only more encouraging, but it is also a more recent indication of the state of the recovery.

The advance estimate of second quarter GDP won't be available until July 31. In the meantime, many public companies will be announcing their earnings results for the second quarter. The strength of those results will provide some clues on the strength of the economy in the second quarter, and to the confidence corporations will have about hiring going into the second half of the year.

No help yet for savings accounts

Despite the recent increases in bond yields and mortgage rates, there is still no sign of widespread increases in rates for savings accounts and other deposits. There are two reasons for this. One is that bonds and mortgages are longer-term commitments than savings accounts, and thus must anticipate the future to a greater degree. The second reason is that mortgage rates represent income to banks, while interest on savings accounts represents a cost. Out of self interest, banks are likely to be quicker to raise mortgage rates than savings account rates.

Even given those factors, if the economy continues to strengthen, it will only be a matter of time before rates on savings accounts are headed higher as well.

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