How Unemployment Affects Mortgage Rates

Unemployment and productivity has an affect on the economy, and indirectly, mortgage rates. Generally, rising productivity will temper inflation. When hiring is soft and unemployment rises, the affect on the economy is dramatic; the Fed may attempt to stimulate an economy in which there is high unemployment by dropping the interest rate, which would stimulate spending, which would in turn create higher demand for products, which would in turn require corporations to hire more employees to meet the increased demand.

In this way, high unemployment leads to lower interest rates, and lower interest rates lead to more jobs. As the unemployment rate drops and the economy gets stronger, the interest rate will then go back up. The best time to get a mortgage then, is when you are working and everybody else is not!

While high unemployment is never a good thing, in a way, it is “good” if you happen to be in the market for a mortgage, since the current mortgage rate will always be lower in a weak economy and in periods of high unemployment. That makes it easier to buy a house, but in reality, it doesn’t do you much good if you’re out of a job.

Or does it? Indirectly, the low mortgage rate was set low as a matter of public policy, so as to stimulate the economy and create job growth. So if you’ve suffered at the hand of corporate layoffs, the fact that other people are buying new homes and refinancing existing ones because of low interest rates is an indirect benefit to you, since it is likely to create more job opportunities for both you and everyone else in the country.