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Bad Employment Data Good for Mortgage Rates

Rising U.S. unemployment pulls interest rates down

June 3, 2011

By SAM GARCIA Mortgage Daily

portrait of Sam Garcia

Homeowners who missed out on last year's record-low mortgage rates might get another chance to catch a refinance wave as deteriorating employment is dragging down interest rates. And with home prices recently falling further -- some consumers could find that a home loan payment is less than a rental payment.

U.S. unemployment increased to 9.1 percent last month from April's 9.0 percent based on data released Friday by the Bureau of Labor Statistics. May's rise in the jobless rate followed a 0.20 percentage point increase reported a month earlier.

The disappointing data have already dragged the Dow Jones Industrial Average down more than a hundred points this morning.

As the stock market gets jittery, investors move their money into the safe haven of Treasury securities. Such activity this morning pushed the 10-year Treasury price up 20/32, according to market data from The Wall Street Journal.

The 10-year yield, which moves in the opposite direction as the price, was 2.96 percent, sinking from 3.07 percent last Friday, based on Treasury Department data.

Since mortgage rates tend to follow the benchmark 10-year Treasury yield, the bad employment news effectively brings the 30-year mortgage rate to around 4.5 percent.

That puts the 30-year within striking distance of the 4.17 percent record-low reported by Freddie Mac in November 2010.

Such a low rate could be an opportunity for consumers who missed the boat during last year's refinance rally.

It also could put some prospective borrowers in lower payments than they are paying in rent -- posing an opportunity to benefit from the mortgage interest deduction afforded only to homeowners.

On top of that, home prices have recently fallen further, making the prospect of ownership even more affordable.

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