The Labor Department reported last Friday that the economy created 271,000 new jobs in October which is much better than anticipated; and the unemployment rate dropped to 5%. That’s great news, of course. In simple terms, people without jobs can’t purchase homes, so more jobs = a larger pool of prospective buyers.
Even entry level jobs can positively impact the market for higher priced homes in places like The Glen and greater Glenview where I focus my real estate practice. Why? Because the sale of an existing entry level home turns the home seller into a buyer of another home, presumably one with a higher price point.
There is a downside to today’s report, though my sense is that it will modest, at least in the short term. With the very positive news on job growth, the Fed is more likely to increase interest rates at its next meeting in December. If so, it will be the first increase since 2006. While the federal funds rate is not directly tied to mortgage interest rates, it increases the borrowing costs of lenders who will pass along their additional costs to their home buyer clients in the form of higher mortgage rates. I’m not an economist and I don’t play one on TV, but I suspect that the Fed’s December increase (if it occurs) and any further increases next year will be modest because the Fed does not want to throw a wrench into a still recovering economy.
So here’s the take away: A healthier employment climate will increase housing demand, but expect modest increases in mortgage interest rates in 2016.
Realtor, Coldwell Banker, Glenview Illinois