The U.S. added a robust 379,000 jobs in February, and the economy is primed to take off, but improved growth prospects might come with a cost in the short run.
In a word: inflation.
Make no mistake. Inflation is still very low right now, and it has been for the past decade. The coronavirus pandemic squelched inflation early last year, and, even now, prices are rising less than 2% a year.
The loss of so many jobs during the pandemic — nearly 10 million are still missing — and resulting drop in demand is also helping to keep a lid on inflation.
“It is difficult, if not impossible, to generate sustained inflation and higher inflation expectations when the economy is still so far away from full employment,” said chief economist Scott Anderson of Bank of the West.
nterest rates are rising quickly, and that has some worried about the effect that movement will have on the U.S. real-estate market. But one analyst suggests that investors should take a deep breath.
The 30-year fixed-rate mortgage averaged 3.02% for the week ending March 4, up five basis points from the previous week, Freddie Mac reported Thursday. It’s the first time since July 2020 that the benchmark mortgage rate has risen above 3%.
The 15-year fixed-rate mortgage, meanwhile, remain unchanged on a weekly basis at an average of 2.34%. The 5-year Treasury-indexed adjustable-rate mortgage averaged 2.73%, down 22 basis points from the previous week.
This rise in rates is a reflection of movements in the bond market. In February, U.S. Treasuries notched the largest monthly surge in yields since former President Donald Trump won the 2016 election.
As bond yields have risen in 2021, so too have mortgage rates. “With the U.S. president indicating that there should be enough COVID vaccines available for every American by May, and the U.S. House of Representatives passing additional stimulus in the latest bill, investors retreated from the bond market, driving interest rates higher,” said George Ratiu, senior economist at Realtor.com.
Typically, mortgage rates roughly follow the direction of long-term bond yields, particularly the 10-year Treasury yield TMUBMUSD10Y, 1.598%.