Mortgage rates will likely rise following the January jobs report shocker, housing experts said Friday. US Treasuries jumped higher after the monthly employment snapshot was released — and where Treasuries go, mortgage rates tend to follow.
With a stronger jobs picture comes more people spending more money, and that's going to make the Fed more likely to raise rates in an effort to curb that inflation. Until inflation is under control, mortgage rates will remain volatile.
While the Fed does not set the interest rates borrowers pay on mortgages directly, its actions influence them.
Mortgage rates tend to track the yield on 10-year US Treasury bonds, which move based on a combination of anticipation about the Fed's actions, what the Fed actually does and investors' reactions.
When Treasury yields go up, so do mortgage rates; when they drop, mortgage rates follow them down as well.
Job gains are always good for the housing market, said Lawrence Yun, chief economist at the National Association of Realtors.
"Home sales and jobs are related over the long term," he said. "That is why the South and the Rocky Mountain regions are seeing more robust home sales gains over the long haul due to faster job growth compared to the rest of the country."
But in the short term, he said, mortgage rates matter more, and there could be a temporary rise.
The strong job data will raise the prospect of consumer price inflation and the need for a more aggressive monetary policy to rein in inflation, Yun explained. As a result, just as mortgage rates were drifting down towards 6%, they could turn around.
"Still, rents are expected to calm down due to active apartment construction," said Yun. "That will help lower the broader consumer price inflation and halt Fed rate increases by summer. Mortgage rates can then go below 6%."