Bad for ↓
The US added 165,000 jobs in October, far above forecasts, and unemployment fell to 4.1%. That makes lower interest rates less likely, which keeps mortgage rates high. This hurts homebuilder D.R. Horton, whose buyers borrow to purchase.
Source: MarketWatch ↗
Good news for workers can be bad news for home sales, because a strong job market keeps interest rates and mortgage payments high.
Employers hired far more people in October than anyone predicted, and pay kept rising. When jobs are plentiful and prices are still climbing, the Federal Reserve is more likely to raise its key interest rate again. That's why investors who lend to the government for years ask for a higher return, which is called the yield.
Banks set mortgage rates by looking at those long-term government yields, so when yields stay high, mortgages stay expensive. Mortgage rates had just eased for three straight weeks, from 7.24% to 7.18%; a report like this threatens to end that relief before buyers feel it. Fewer people can afford to buy, and almost nobody refinances into a higher rate.
D.R. Horton sells new homes, and most of its buyers need a mortgage, so pricier loans mean fewer buyers or bigger discounts. How deep the hit goes depends on how long rates stay high.
Payrolls rose 165,000 in October against a forecast of 59,000, and unemployment edged down to 4.1%. Pay rose 3.1% on the year. With consumer prices up 3.7% in the year to September, a hot job market raises the odds of another Fed rate hike in December (markets put it near 77% after the report). The further link runs through housing. Mortgage rates track long-term Treasury yields. The 10-year yield stood at 4.90% on November 4, and the 30-year mortgage rate averaged 7.18% in the week to November 5. If yields stay high, buyers at D.R. Horton (DHI) face larger payments, and refinancing stays scarce for mortgage lenders. D.R. Horton reported on Oct 28 that net orders fell 7% from a year earlier in the quarter to September, with cancellations rising to 23%, and blamed higher mortgage rates.
D.R. Horton's shares fell 2.3% on November 6, giving back part of a 5.5% gain over the previous five trading days, as Treasury yields rose on higher odds of a Fed hike.
The link fails if bond investors focus on other market worries, or on slowing growth, and push yields down. Watch for the Freddie Mac weekly 30-year mortgage rate falling back clearly below 7.18% over the rest of November, or the 10-year Treasury yield retreating well under 4.90%.
More jobs also mean more people with steady paychecks (pay is up 3.1% on the year, though still behind 3.7% inflation) who can qualify for a mortgage. That could support home demand even at high rates. And if other market worries send investors into government bonds, yields and mortgage rates could fall, helping D.R. Horton.
Earlier connections in the same sector that share a theme with this one.
No comments yet.
Sign in to comment