The Strong Get Stronger

The jobs keep coming. Better yet, they keep coming at a faster pace.

Job growth was much stronger than nearly everyone expected in November. Payrolls for the month jumped 321,000 . At the same time, job numbers for October and September were revised up by 44,000. More of us are not only working, but we are earning more doing so. Average hourly earnings spiked 0.4% in November after edging up 0.1% in October.

At the beginning of the year, we said 200,000-or-more monthly job growth was key to a sustained recover. Job growth for the year has exceeded our expectations. All but one month reported over 200,000 in new jobs, while two months posted over 300,000 new jobs.

Job growth and economic growth go hand-in-hand. On the latter, many economists have ratcheted up their gross domestic product (GDP) growth expectations.

The U.S. Commerce Department believes final GDP growth will post at 4.6% at an annual rate for the third quarter, up from 3.6%. The economists at JPMorgan Chase see GDP growth posting at 4.4%, up from 4.3%. Barclays upped its final estimate to 4.2% from 4.1%. Annualized GDP growth above 4% is considered strong.

The growth we're seeing in the waning months of 2014 certainly gives us reason to anticipate 2015. Indeed, we expect 2015 to be a breakout year for housing. In addition to continued economic growth, home prices will continue to rise, though at a rate that will likely revert to historical norms. This is good news because it means market expectations will be better calibrated with market reality.

When it comes to lending reality, we're seeing a sustained pick up in purchase-mortgage activity. Last week, the Mortgage Bankers Association's weekly survey showed purchase applications were up again. Over the past two months, purchase applications have trended generally higher.

We expect purchase activity to continue to trend positively. With growth comes more willingness to lend. Lenders and regulations naturally become more willing to reach further out on the risk curve, thus creating a larger pool of potential buyers. (To wit: Fannie Mae and Freddie Mac recently introduced new programs that allow borrowers to put only 3% down for a mortgage.)

This market is extraordinary in that we have strong economic growth coupled with low interest rates. Despite last week's strong jobs report, mortgage rates have actually drifted lower. The 30-year fixed-rate mortgage is still regularly quoted below 4%.

With that said, we shouldn't expect mortgage rates to remain at these levels if growth continues to steam ahead at the current rate. One day the Federal Reserve will move to lift interest rates. Growth sustained at the current rate means that day will come sooner than later.

Information provided by Jessica Regan.

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