Mortgage rates drop after disappointing jobs report

Mortgage interest rates declined this week after a disappointing jobs report and a speech by Federal Reserve Chairwoman Janet Yellen that seemed to take a June rate hike by the Fed’s rate-setting committee off the table.

The Bureau of Labor Statistics reported Friday that the U.S. unemployment rate dipped to 4.7 percent in May.

However, employers added only 38,000 nonfarm jobs during the month, workforce participation declined and more people who said they wanted full-time work were employed only part time.

Those numbers prompted one housing economist — Robert Denk at the National Association of Home Builders — to write in a blog post, “April was a bad month, May is a shocker, and June is a non-starter.” All that added up to a worrisome week for the U.S. economy and, consequently, lower rates for home loans.

Mortgage rates this week

• The benchmark 30-year fixed-rate mortgage fell to 3.74 percent from 3.81 percent, according to Bankrate’s survey of large lenders. A year ago, it was 4.15 percent. Four weeks ago, the rate was 3.75 percent. The mortgages in this week’s survey had an average total of 0.18 discount and origination points. Over the past 52 weeks, the 30-year fixed has averaged 3.97 percent. This week’s rate is 0.23 percentage points lower than the 52-week average.

• The benchmark 15-year fixed-rate mortgage fell to 3 percent from 3.05 percent.

• The benchmark 5/1 adjustable-rate mortgage fell to 3.13 percent from 3.22 percent.

• The benchmark 30-year fixed-rate jumbo mortgage fell to 3.71 percent from 3.76 percent.

Timing of Fed hike is less clear

In her speech Monday in Philadelphia, Yellen said the Fed would probably need to raise the federal funds rate “gradually over time.” That appeared to backpedal from a speech three days earlier in which she said it probably would be appropriate for the Fed to raise the funds rate in the coming months.

Yellen also delivered pointed reminders Monday that “all economic projections are certain to turn out to be inaccurate in some respects” and that when the Fed will raise rates depends on how current uncertainties unfold.

Whether that will be “over time” or “in the coming months” is anybody’s guess.

Lenders get squeezed

Then again, what the Fed does is only one component of interest rates.

In a speech Wednesday at a real estate conference, James Lee, senior principal at Kensington Realty Advisors in Chicago, suggested rates borrowers pay could rise regardless of the Fed’s actions.

“I see banks, insurance companies, mortgage-backed securities, all slowing down with the demand still being there. That increases spreads because of the supply and demand,” Lee said.

“Spreads” in this context refers to the difference between the interest rates that lenders charge to mortgage borrowers and the interest rates that those same lenders pay for the money they borrow.

Even if the Fed doesn’t act, lenders could charge borrowers higher rates if the supply of capital is constrained and borrower demand is strong.

Lee says government regulators are “clamping down on banks,” which constraining the availability of capital for real estate lending.

That increases the cost of capital for housing developers and homebuyers, making housing less affordable to build and buy.