At Inman Connect Las Vegas, July 30-Aug. 1 2024, the noise and misinformation will be banished, all your big questions will be answered, and new business opportunities will be revealed. Join us.
Mortgage rates were in retreat Friday after the Bureau of Labor Statistics reported that employers added fewer jobs in April and May than previously thought and that hiring by private companies was sluggish in June.
After spiking following the June 27 presidential debate, rates are once again trending down this week as bond market investors who fund most mortgages are increasingly convinced the Fed will cut rates in September.
While employers added an estimated 206,000 nonfarm jobs in June — about 16,000 more than forecasters expected — government hiring accounted for more than one-third of the increase, Mortgage Bankers Association Chief Economist Mike Fratantoni said in a statement.
Mike Fratantoni
With previous estimates of jobs created in April and May revised down by a combined 111,000 jobs, job growth slowed to 177,000 jobs per month in Q2, Fratantoni noted, compared to 220,000 over the past year.
“Beyond this headline, other aspects of the data indicate a slowing job market,” Fratantoni said. “The unemployment rate ticked up to 4.1 percent. Wage gains slowed again to 3.9 percent on a 12-month basis, and temporary hires actually decreased by 49,000, a sign that business demand for labor is decreasing.”
Payroll growth continues to slow
In a note to clients Friday, Pantheon Macroeconomics Chief Economist Ian Shepherdson characterized the April and May payroll revisions as “massive.”
Private payrolls, excluding private education and healthcare, rose by just 54,000 in June — “well below the prior six-month average” of 101,000 — and are likely to slow even further in coming months, Shepherdson said.
Ian Shepherdson
“We continue to expect growth in total payrolls to drop below 100,000 before the end of Q3 and think that investors are seriously underestimating how quickly the Fed will pivot to reducing rates,” he said.
Forecasters at Pantheon Macroeconomics expect the Fed to slash rates by 1.25 percentage points this year, starting with a 25 basis-point cut to the federal funds rate in September, and 50 basis-point cuts in November and December meetings.
Futures markets tracked by the CME FedWatch Tool show investors are increasingly certain that the Fed will start cutting rates in September, but most don’t expect rates to come down by more than half a percentage point this year.
The CME FedWatch Tool on Friday put the odds of a September rate cut at 78 percent, up from 74 percent on Wednesday and 64 percent on June 28. But futures markets investors are pricing in only a 27 percent chance that the Fed will cut rates by more than 50 basis points this year. A basis point is one-hundredth of a percentage point.
“Historically speaking, this is still a tight job market,” Fratantoni said. “However, relative to more recent data, the job market is weakening. Inflation data showing more reductions for the next couple of months will be the most important evidence that the Federal Reserve needs to cut rates in September. The current job market data points in that direction once you read below the headline.”
Yields on 10-year Treasury notes, which often indicate where mortgage rates are headed, fell 7 basis points Friday.
Rates back to pre-debate levels
Source: Yahoo Finance.
At 4.28 percent Friday, yields on 10-year Treasurys were back to roughly where they were before spiking after the June 27 presidential debate.
Yields on long-term Treasurys surged to nearly 4.5 percent after President Joe Biden’s poor performance in polls after the debate, as bond market investors weighed the prospects that inflation might flare up again under a second Donald Trump administration.
Mortgage rates ease
After flirting with 7 percent Monday, rates for 30-year fixed-rate mortgages have been on the retreat, pulling back to an average of 6.96 percent Wednesday, according to rate lock data tracked by Optimal Blue. After hitting a 2024 low of 6.50 percent on Feb. 1, rates on 30-year fixed-rate loans had climbed to 7.27 percent on April 25 on fears that progress in taming inflation had stalled.
Optimal Blue data lags by a day, but a survey by Mortgage News Daily (MND) showed rates on 30-year fixed-rate mortgages falling for a third consecutive day Friday following the Fourth of July holiday.
MND data shows rates for 30-year fixed-rate loans climbed by 9 basis points in the two days following last week’s presidential debate, but have since fallen by a total of 11 basis points on Tuesday, Wednesday and Friday.
Fed policymakers have consistently said they want to see more evidence that inflation is easing before cutting rates. The Federal Reserve’s preferred inflation gauge — the personal consumption expenditures (PCE) price index — moved away from the Fed’s 2 percent target in February and March 2024.
But the latest PCE index reading, released on June 28, showed the annual rate of inflation dropping for the second month in a row in May, to 2.56 percent.
Other recent reports that indicate inflation is waning include:
- Reports from the Institute for Supply Management (ISM) showed the manufacturing sector contracted in June for the 19th time in the last 20 months, and that the services sector contracted by 5 percentage points from May to June.
- Initial jobless claims crept up by 4,000 during the week ending June 29, to 238,000, the Department of Labor reported Wednesday. Jobless claims surged above 240,000 during the week ending June 8 for the first time since August 2023.
“The trend in jobless claims has continued to deteriorate in recent weeks, hiring and hiring intentions indicators remain depressed, job openings are back to pre-COVID norms, and households have become more fearful that unemployment will rise,” Shepherdson said of his view that substantial rate cuts are coming this year. “Extremely high real interest rates, alongside slowing sales growth, will force more businesses over the coming months to squeeze staffing costs.”
Many in the real estate industry are keeping their fingers crossed for lower mortgage rates.
A weekly MBA lender survey showed homebuyer demand for purchase mortgages fell by a seasonally adjusted 3 percent during the week ending June 28 when compared to the week before and were down 12 percent from a year ago.
Although the number of homeowners feeling the “lock-in effect” created by higher rates is slowly declining, three out of four homeowners still have mortgages with a rate below 5 percent, according to the July 2024 ICE Mortgage Monitor Report.
Get Inman’s Mortgage Brief Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to subscribe.
