From October 4, 2024

This is a great article from Jeff Bond, editor of the Scotsman Guide. This article came out prior to the job’s report, which came in much higher than expected, but it’s a great overview of the market and factors at play. It’s worth a read and direct link to source below.

Article:

Hopes of lower interest rates on mortgages for homebuyers may have been dashed, at least in the near term, by Friday’s hot jobs report and a drop in the unemployment rate.

According to Mortgage News Daily, the interest rate on a 30-year mortgage jumped 27 basis points Friday to 6.53% following release of the September employment report by the U.S. Bureau of Labor Statistics, which showed that employers added about 104,000 more jobs than were expected. The employment gains for other months were also revised upward.

The stronger jobs market points to a robust economy, and signals that the Federal Reserve may be able to implement a slow and steady policy toward future rate cuts. That deliberate stance may work to slow the reduction in home loan rates going forward.

Even before this jump, the rate on the 30-year fixed mortgage had halted an extended slide and was beginning a modest rise. According to Freddie Mac, the rate was at 6.12% as of October 3, up from 6.08% the week before. Sam Khater, Freddie Mac’s chief economist, said that the decline in mortgage rates had “stalled” thanks to a mix of escalating geopolitical tensions and a rebound in short-term rates that indicate the market’s enthusiasm about rate cuts was premature.

“Zooming out to the bigger picture, mortgage rates have declined one and a half percentage points over the last 12 months, home price growth is slowing, inventory is increasing, and incomes continue to rise,” Khater said. As a result, the backdrop for homebuyers this fall is improving and should continue through the rest of the year.”

Some analysts, however, pointed to the fact that another jobs report was coming out before The Federal Reserve makes its next decision on interest rates. That report could be weaker and open the door to reducing interest rates. But for the time being, other Fed watchers seemed resigned that interest rates would lean toward trending higher.

“The September Jobs report crushed consensus expectations, likely undercutting mounting concerns of weakness in the labor market and lowering the probability of a 50-basis point cut in November,” said Odeta Kushi, deputy chief economist at First American. “The 10-year treasury yield is higher on this news, which may result in some upward pressure on mortgage rates.”

Lawrence Yun, chief economist at the National Association of Realtors, struck a balanced tone.

“Even with the solid job figures, the Federal Reserve will continue to cut its short-term interest rates but with more caution. Mortgage rates, however, which are not controlled by the Fed, look to rise modestly and temporarily,” he said.

There were indications that the mortgage market was already holding steady or experiencing a slight slowdown after the quicker pace brought on by the Fed’s recent rate cut. The MBA reported that mortgage loan application activity for the week ending September 27 had decreased 1.3% from the previous week. The refinance business, which had been on fire recently, also slowed, dropping 3% from the week before, but was still up 186% from the same week a year ago.

The MBA’s seasonally adjusted Purchase Index increased by 1% from the previous week and was up 9% from the same week in 2023. Fratantoni said the results showed that the economy was still growing at a solid pace, even as inflation continues to decline.

Jeff Bond is editor of Scotsman Guide Commercial Edition.

Mortgage rates already trended up before the jobs report — now what? – Scotsman Guide