Good Jobs Report Means Bad News for Borrowers, Experts Say

Americans watching cable news might have been cheered when they saw the latest jobs report: the United States added 303,000 new nonfarm jobs in March and unemployment fell to 3.8%. Both numbers exceeded expectations.

But viewers who are also shopping for a mortgage may have had a different reaction. Economics and housing experts say less unemployment means more pressure on Federal Reserve Chair Jerome Powell to keep interest rates high. And the result has been an uptick in rates.

Powell has made it clear his priority is getting inflation under control. His target number for rising prices is a 2% annual rate. Instead, prices have been rising nearly twice that fast, and the inflation rate has been higher than expected for the last three months in a row.

“More recent data shows solid growth and continued strength in the labor market, but also a lack of further progress so far this year on returning to our 2% inflation goal,” Powell said Tuesday.

It’s not a coincidence, therefore, that mortgage rates rose to a four-month high last week. The price of money is tied to inflation, and there is no workaround.

The Mortgage Bankers Association reported today that the contract rate on a 30-year fixed mortgage rose 12 basis points to 7.13% during the week ended April 12. That translates to an effective rate of 7.32%, the highest level since December 2023.

The good news for mortgage brokers is that higher rates haven’t hurt demand, according to the Mortgage Bankers Association. They report the market composite index actually ticked up slightly last week, with homebuyer mortgage applications up 5%.

“Despite these higher rates, application activity picked up, possibly as some borrowers decided to act in case rates continue to rise,” said MBA Deputy Chief Economist Joel Kan.

And a panel of economists tells the Wall Street Journal that they’ve lowered their expectations for interest rate cuts in 2024 as inflation remains stubbornly high.

“If higher inflation does persist, we can maintain the current level of interest rates for as long as needed,” Powell said.

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