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Updated: Feb 10, 2022

FEBRUARY 7, 2022,

The economy continues to improve with job growth surprised on the upside despite surging Covid cases at the start of 2022. While the strong gain in payrolls is great news for the economy, the labor market resilience also provides more reasons for the Federal Reserve to raise rates to keep inflation from rising further. After holding steady since the mid of January, mortgage rates are on the upswing again as the market responds to the big jobs report. The surge in rates may have raised concerns for many potential homebuyers, but it also could have motivated them to get into the market sooner before rates rise further, as evidenced by the increase in mortgage applications in recent weeks.

Job Growth Exceeds Expectation: The U.S. economy added 467,000 jobs in January despite surging Omicron cases which seemed to have sidelined millions of workers. The gain in nonfarm payroll was well ahead of the consensus of 150,000 estimated by Wall Street. Job growth in November and December was also revised upward by 709,000 from their previously reported figures combined. For the year 2021, employers added 6.67 million jobs, which was the highest single-year gain in U.S. history. Strong gains in employment, along with a sharp increase in wage growth at 5.7%, could pave the way for the U.S. central bank to raise rates sooner than later.

Mortgage Rates Remain Unchanged… for Now: For the third consecutive week, mortgage rates remained flat with the average 30-year fixed rate reported weekly by Freddie Mac staying at 3.55%. Daily rates, which had been relatively stable for a couple weeks, started rising rapidly however after the big monthly jobs report. With the jobs numbers came in much higher than the average forecast, the market responded accordingly with bond yields surging to their highest levels in more than two years. According to Mortgage News Daily, the average lender is now quoting conventional 30-year fixed rates in the 3.75-3.875% neighborhood.

Homebuyer Sentiment Dips as Rates Rise: Consumers are feeling less positive about buying in the housing market at the start of the year, as prices remain elevated and mortgage rates continue their upward trajectory. C.A.R.’s monthly survey showed home buying sentiment in California dipped to 19% after reaching an 8-month high of 22% in December. It was the eighth time in the past nine months that less than 20% of respondents said now is a good time to buy a home. With housing supply not expected to rise meaningfully and home prices projected to increase further in 2022, heated market competition and low housing affordability continue to be the utmost concerns for many buyers. Nearly three quarters of all respondents, on the other hand, said now is a good time to sell.

Mortgage Applications Up as Borrowers Try to Secure a Lower Rate: The surge in rates since the beginning of 2022 motivated more homeowners to refinance, resulting in an increase in mortgage applications by 12% from the previous week, according to the Mortgage Bankers Association survey for the week ending January 28. The index for purchase applications, meanwhile, increased 4% from the week before but dipped 6.7% from a year ago. Housing demand may have slowed down from a year ago because of higher rates, but the increase in purchase applications implies that there are still plenty of buying interest in the market. The average loan size for purchased applications reached a new high at $441,100, as low inventory continues to push up home prices by double-digit growth rate at the national level.

Homeownership Down Slightly from a Year Ago: Homeownership rate in the final months of 2021 experienced a slight dip from the prior year but was virtually unchanged from the third quarter of 2021. The U.S. homeownership rate came in at 65.5% in Q4 2021, down from 65.8% in Q4 2020, but was not statistically different from the rate in Q3 2021. White, non-Hispanics remained the ethnic group with the highest ownership rate at 74.4%, and the rate was unchanged from a year ago. The rate of Black homeownership, however, dropped one percentage point to 43.1% in Q4 2021, while the rate for Hispanic declined to 48.4% in Q4 2021 from 49.1% in Q4 2020. With interest rates expected to rise in 2022, homeownership gaps between ethnic groups could widen further in the coming years.

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