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Of the numerous economic reports that are released each month-Consumer Price Index, Producer Price Index, Durable Goods, Housing Starts, etc.-the one that can affect the housing market the most is the Employment Report. How? Well, it starts with the Federal Reserve, or "the Fed." The Federal Reserve is responsible for doing two things for the U.S. economy: 1) Keeping inflation under control and 2) fostering growth in the economy. To do this, they control the level of short-term rates. If the unemployment rate goes up, the Fed reacts by lowering short-term rates to stimulate the economy. If more people are unemployed, they have less money to pay for things, so the Fed tries to help this by lowering rates. When more jobs are being created, the Fed raises short-term rates to control the rate of economic growth. If more people are employed, they have more money to pay for things which can spur the economy. The Fed has to make sure the economy doesn't grow too fast. Right now, the unemployment rate is at 4.6 percent. So far, job growth has leveled off over the past few years which could indicate a pause in short-term rate hikes. To date, the Fed has raised short-term interest rates 17 times since mid-2004 and they will meet again in August. Also, since short-term interest rates and mortgages, such as adjustable rate mortgages (ARMs) and home equity loans, are closely tied, when the Fed raises or lowers short-term interest rates, rates for ARMs and home equity loans do the same. When rates change, homeowners' monthly mortgage payments also change-the higher the rate, the higher the payment. Changes in mortgage rates can also have an effect on home buyers deciding what kind of mortgage to get to finance their home purchase, homeowners who want to refinance their loan, and whether or not they do so. In summary, the Employment Report has the power to move the housing market. Homeowners with adjustable mortgage rates have continued to experience a rise in their monthly payments. Also although the Fed has indicated it may stop the rate hikes, it's still not a foregone conclusion. Those whose rates and payments have increased should still think about refinancing to fixed rate mortgages.
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