Why is everyone from the White House to Main Street rooting for lower mortgage rates?<\/p>\n
Sure, individually speaking, cheaper financing improves a person\u2019s ability to buy goods \u2013 including a home. That\u2019s why people like President Donald Trump and numerous house hunters want the Federal Reserve to do what it can to nudge rates lower.<\/p>\n
But history reveals a dark side to sliding rates: They typically come when the overall economy is suffering.<\/p>\n
My trusty spreadsheet looked back to 1990 to see how annual swings in the 30-year mortgage rate, as tracked by Freddie Mac, meshed with home-price indexes from the Federal Housing Finance Agency and job counts from the Bureau of Labor Statistics.<\/p>\n
When you rank the years by the change in mortgage rates and slice them into three groups, you see how mediocre the economy runs when rates are declining.<\/p>\n
During the 12 years when mortgage rates had their biggest dips since 1990, these years had an average rate slide of 0.8 percentage points.<\/p>\n
The big rate drops came as home-price gains averaged only 3% in California and nationwide.<\/p>\n
Why so modest? Well, jobs \u2013 key to a house hunter\u2019s willingness to buy \u2013 were falling at a 0.6% annual rate across California and 0.2% nationwide as rates tumbled.<\/p>\n
Now compare those sour days with surging mortgage rates.<\/p>\n
The 12 years when mortgages saw their biggest jumps saw rates average a 0.7-percentage-point increase.<\/p>\n
In those years, California home prices jumped an average 10%. The nation saw 7% gains.<\/p>\n
Again, eyeball employment.<\/p>\n
Large rate hikes came as California bosses were boosting staffing at a 2.4% annual rate. Nationally, these same years saw 2.1% job growth.<\/p>\n
When times are good and hiring is plentiful, folks are willing to pay up for many things \u2013 including housing and financing.<\/p>\n
But when times are bad, and job cuts are frequent, folks need financing discounts. Falling mortgage rates signal economic distress.<\/p>\n
Hopefully, the next chairman of the Federal Reserve understands this history lesson.<\/p>\n
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com<\/a><\/p>\n