Mortgage rates really have nothing to do with the Government , but the Government has a lot to do with mortgage rates. Mortgage rates are set by lenders who react to the prices of mortgage backed securities which are sold on Wall Street. (Simplified) Mortgage backed securities are susceptible to the gyrations of the Treasury Market (Bond Market) and tend to mirror the Treasuries, especially the 10 year note. Not much Government influence to this point.
The Government gets involved every time there is a report released by one of the agencies, none bigger than the one we get this Friday, The Non Farm Payroll report for April, otherwise known as the April employment report. It will tell us four things: the number of jobs created in April in this Country, but not "household jobs", the unemployment rate, the hourly increase or decrease in wages and the average hourly work week.
Now throw into the mix revisions of the two previous months job creation, in the distant past usually up or down for a couple of months and then reverse the trend. In the recent past every revision for about six or seven months has been up for both months that are being revised. (My recollection).
Now the icing on the cake. The main concern is not really the amount of jobs created but the direction of the creation in relation to the estimate by a group of economist s , as if this wasn't tough enough. If the estimate is for 140,000 jobs and the number is 100,000 then the bond market will probably rise and interest rates will come down because the consensus will be it wasn't a strong report and the Federal Reserve could consider cutting interest rates. But if the consensus is for 75,000 jobs and it comes in at 100,000 then the opposite will most likely occur, the bond market sells off and rates go up because the report is stronger than anticipated. Writers note: I do not make this stuff up!
If the hourly wages go up 7 cents and the projection was 4 cents this is also bad news as it will appear that we could have wage inflation. If the work week goes up by an hour or two this could mean a tight labor market and again inflation which is bad news for interest rates.
So the first Friday of every month the waiting and watching on the days leading up to the report is rewarded at 8:30 eastern, 5:30 pacific time when the report is released. Now that you think you understand how it works let me remind you of the revisions. If the jobs for April come in a bit under the estimate and they revise February and March we could still have a sell off in the bond market because the additional jobs that are in the revision are counted in conjunction with the April numbers, and up goes the interest rates.
Oh, by the way, the report is seasonally adjusted! The numbers aren't really the numbers.
Just this week we had the national purchasing managers report showing manufacturing expanding faster than had been anticipated. Regardless of that report the odds always favor manufacturing to lose jobs almost every month. How can that be? Different agency!
As I said mortgage rates really have nothing to do with the Government, but the Government has a large influence on mortgage rates. The employment report is just one of a dozen or so reports that all work in the same manner as the report on wholesale inflation:the producer price index,retail inflation:the consumer price index, retail sales report, consumer confidence, durable goods, housing starts, new home sales, etc.
When you find a rate you like for your mortgage whether it is a purchase, cash out transaction or a refinance and you start to wonder whether you should take it or wait, remember what you are up against in the real world.