Labor Data, Elections Play Tug-of-War With Mortgage Rates
Overview: Over the past week, stronger than expected labor market data was negative for mortgage rates, while the election results were positive. The net result was that mortgage rates ended the week slightly higher.
In addition to solid job gains, the pace of wage growth jumped to a multi-year high. In October, average hourly earnings were 3.1% higher than a year ago, up from 2.8% last month, and the largest annual rate of increase since 2009. Since the data point which “dropped off” and was replaced by the most recent reading to determine the current 12-month average was a weak one, investors were expecting this increased level of wage growth.
Tuesday’s election produced the outcome viewed as most likely by investors. Democrats took control of the House, while Republicans maintained an edge in the Senate. Investors expect that this will result in more gridlock and less government spending. If this takes place, it would mean that fewer bonds would need to be issued to fund the budget deficit, which would be positive for bond yields, including mortgage rates.
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