The Rising Unemployment Rate Foreshadows Lower Mortgage Rates

June 16, 2024

The Rising Unemployment Rate Foreshadows Lower Mortgage Rates 

The unemployment rate is up .6% since April 2023 and currently stands at 4.0% according to the Bureau of Labor Services (BLS). Current economic trends suggest an increase to 4.1% or 4.2% could be on the near-term horizon. This potential rise is significant as it often serves as a bellwether for recessionary pressures, influencing the Federal Reserve's policy decisions, particularly regarding interest rates.

The Link Between Unemployment Rates and Mortgage Rates

A climbing unemployment rate typically signals weakening economic conditions, prompting the Federal Reserve to potentially lower interest rates to stimulate the economy. This action in turn affects long-term mortgage rates, which are closely tied to this broader slowdown of the economy and reduction in inflation. If unemployment hits the anticipated mark of 4.1% to 4.2%, it will likely be the trigger that leads the Federal Reserve to cut short term rates, and signal lowering mortgage rates as well.

Implications for the Housing Market

  1. Increased Affordability: Lower mortgage rates make home buying more accessible for a larger pool of potential buyers. Cheaper borrowing costs mean lower monthly payments, which can broaden the market of individuals able to afford homes. It’s estimated that five million more Americans can afford homeownership with every one percent reduction in mortgage interest rates.
  2. More Competition: While more affordable rates are beneficial for buyers, they also lead to increased demand and competition in the housing market. As more people are able to enter the market with lower mortgage payments, demand for available homes rises, which drives up prices as a result of lower mortgage rates.
  3. Strategic Opportunities for Buyers: Lower mortgage rates are very likely on the horizon, but timing a home purchase is like trying to thread a needle. Move too early and you finance at elevated rates and monthly payment. Move too late and home prices will shoot higher as demand increases with lower mortgage rates. 

Beat the Rush by Purchasing Early

Interest rates are hovering at a point where any reduction in mortgage rates would likely attract massive numbers of buyers into the market. By choosing to purchase your home now, before a potential rate drop, you can avoid the rush and competition that often comes with more favorable borrowing conditions.
This proactive approach not only secures your home ahead of others but also capitalizes on current opportunities where sellers might be willing to contribute towards your closing costs. Moreover, if interest rates do drop after your purchase, you have the option to refinance at lower rates with NEO Home Loans Free Refinance program. This program allows you to refinance with no additional lender fees, providing an excellent opportunity to reduce your mortgage payments when rates become more favorable.

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