Mortgage rates dropped slightly this week as investors eye September's jobs data that will be released tomorrow morning. Specifically, according to the mortgage finance provider Freddie Mac, the 30-year fixed mortgage rate fell to 2.99% from 3.01% the previous week.
While there are plenty of indicators that influence mortgage rates, employment is definitely one of the most important factors that has a big impact on mortgage rates. Particularly, mortgage rates tend to rise when employment grows and the unemployment rate falls. This means that good news for employment is bad news for mortgage rates, or bad news for employment is good news for mortgage rates. The relationship between mortgage rates, employment growth and the unemployment rate is shown clearly in the graph below.
Meanwhile, job growth is being closely monitored as it will also determine the timing of the Fed's tapering, which can cause mortgage rates to move upward. As the outlook for the labor market's rebound is positive, this translates to higher mortgage rates in the following months. NAR forecasts employment to grow 3% on average in the last quarter of 2021.
Nevertheless, even though mortgage rates may rise, they will continue to be historically low. The 30-year fixed mortgage rate will likely average 3.5% by mid-2022. As more Americans rejoin the workforce, demand for housing is expected to remain robust as they set their sights into homeownership, especially with low mortgage rates. The National Association of REALTORS® forecasts about 6 million existing homes to be sold in 2022, roughly the same as this year.