"This is not music to the real estate market's ears"
One day you’re up, and the next day you’re down.
Last Wednesday, the Fed raised rates for the 10th straight time, setting the stage for lowered mortgage rates. Yet two days later the US Bureau of Labor Statistics released its latest jobs report showing the economy added 253,000 jobs in April – substantially more than had been expected.
As it relates to mortgage rates in the future, this mixed bag of data complicates things.
A robust market is good, but not in taming inflation
While a robust job market is normally a good sign, it doesn’t bode well in terms of taming inflation. The Fed likely will raise the interest rate yet again as it seeks to bring inflation to 2% from the current 5%. And that positive jobs report throws things into question as it relates to mortgage rates.
“More jobs equals more consumer spending,” Melissa Cohn, regional vice president at William Raveis Mortgage explained. “The Fed's job just got harder and mortgage rates have moved higher as bond yields moved sharply higher… This is not music to the real estate market’s ears.”
The rate of job growth brings the unemployment rate to a historic low of 3.4% — again normally a cause for celebration were it not for the uptick in mortgage rates resulting from the development.
Again, Cohn explains: “Today’s jobs report shows that the economy is still chugging along at a faster pace than is necessary to bring the rate of inflation back to 2%. New jobs were created in many industries, including those that are rate sensitive.”
More rate hikes are likely on the horizon
The Fed raised rates by another 25 basis points last week, the smaller hike seen as a sign that inflation was weakening. And then came that jobs report, throwing things into uncertainty.
“With the economy still looking strong, it increases the likelihood — but does not ensure — that the Fed could keep increasing rates,” Cohn said. “We’ll have to keep an eye out for the next round of CPI [Consumer Price Index] and jobs numbers, but for those looking for signs that the Fed would need to chill on its rate hikes, this week didn’t provide them.”
Some wonder what impact interest rates have on mortgage rates. It’s complicated, and it’s indirect. As explained by Bankrate, the Fed’s latest 25% hike pushed the federal funds rates above 5% for the first time since 2007. “While the Fed does not set mortgage rates and the central bank’s decisions don’t drive mortgage rates as directly as they do other products, (like savings accounts and CD rates), key players in the mortgage industry keep a close eye on the Fed’s moves. The mortgage market’s attempts to interpret the Fed’s actions affect how much you pay for your home loan.”
According to the US Bureau of Labor Statistics, both the unemployment rate at 3.4% and the number of unemployed persons, at 5.7 million, changed little in April. The unemployment rate has ranged from 3.4% since March 2022 – the same time the Fed started its rate-hiking inflation.
The jobs report contained more grim news hitting home for the mortgage industry – unless one views the findings as illustrative of potential market gains amid shrinking competition. According to the report, non-bank mortgage employment declined by more than 3,000 jobs.
