The Jobs Continue to Roll In

Last week we asked – somewhat rhetorically – whether the recovery was really on. If you were to focus on job growth, you'd be hard pressed not to answer “yes.”

Once again, rising economic activity produced another 200,000-plus month of new jobs. Specifically, 257,000 new jobs were created in January. At the same time, the unemployment rate inched up to 5.7%. This might seem a paradox – more jobs and a higher unemployment rate – but it isn't. When job creation ramps up, more people enter (or re-enter) the job market.

More good news was found on the wage front. Wage growth has stagnated in recent years, but is moving higher. The average hourly rate bumped up $0.12 to $24.75 in January. More people working and more people earning more is obviously a good thing.

The job numbers were better than most analysts and economists expected. The unexpected nearly always moves markets. Unexpected job growth resonated throughout credit markets. Over the past week, the yield on the 10-year U.S. Treasury note moved nearly 10-basis-points higher. Because the 10-year note serves as a base rate for the 30-year fixed-rate mortgage, we were unsurprised the rate on this benchmark mortgage loan also moved 10-basis-points higher.

Mortgage rates are higher, but they're still very reasonable. The 30-year loan remains firmly ensconced below 4%, while the 15%-year loan remains firmly ensconced below 3.25%. We say rates are reasonable because the downward trend in oil prices appears to have ended. Oil prices are moving higher. Rising oil prices could lead to more consumer-price inflation down the road. Rising consumer-price inflation could pressure interest rates to move higher.

The overall rate of home-price appreciation is becoming more reasonable (by historical standards). FNC's Residential Price Index was up 5% year over year in December. Trulia's data show that asking prices for homes rose 0.5% in January, or 7.5% year over year.

Prices continue to rise, but at a rate more aligned to historical norms. Normalcy is what market participants want. No one wants a market running too hot or too cold. The closer we get to that Goldilocks equilibrium, the more vibrant and sustainable the market becomes.

We've mentioned frequently the inability for existing-home sales to sustain growth. We think 2015 could finally be the breakout year. Normalized price-appreciation is a factor, but so is the trend in national home rents. Trulia reports rents were up 6.5% year over year in January. The rental market remains tight. A tight rental market makes owning a more viable and desirable alternative to renting.

Information provided by Jessica Regan.

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