Don’t Panic… But You Should Lock

Let’s talk basics:

  1. Inflation pushes mortgage rates higher because money is worth less so you need more return.
  2. Job growth is inflationary because when people get jobs, they typically spend more and the economy grows.

Now, 22 states (soon to be 26) have cut the $300-$400 per week in additional pandemic assistance and the other states are set to around Labor Day. Interestingly enough, the 22 states that have cut additional assistance have seen 2x the jobs growth over the last month compared to states who have not.

Tomorrow, we are getting the jobs report… and its got some shoes to fill. Aggressive projections have the mortgage industry on edge because strong jobs means inflation and inflation means increasing rates.

Not so fast…

Remember, the reason jobs growth is inflationary is because people who didn’t previously receive a paycheck are now getting one, so they spend more money. However, a large portion of job growth is coming from people who were on extended assistance programs. So, they aren’t necessarily bringing in more dough, they are going from one income source to another. The amount they spend in the market could be similar or slightly higher compared to when they were receiving assistance. Meaning we may not see the immediate inflation that many people fear.

The Rates

All mortgage bond investors know the 2 points above and will panic if the jobs report comes in as high as expectations. This will create panic selling and mortgage rates could rise in the short term. Because of this, we recommend locking before the jobs report is released.

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