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Mortgage rates could have some room to come down after two closely watched reports showed job postings dipped in September and the U.S. economy grew at a healthy, but slower-than-expected, pace during the third quarter.
Any relief would be good news for would-be homebuyers, who showed some resilience last week as mortgage rates continued to rise to the highest levels since July, according to a weekly lender survey by the Mortgage Bankers Association.
Applications for purchase loans were up a seasonally adjusted 5 percent last week compared to the week before, and 10 percent from a year ago, according to the MBA’s Weekly Applications Survey.
The runup on rates has had a bigger impact on homeowners thinking about refinancing, with refi applications down 6 percent week over week and 84 percent from a year ago.
Joel Kan
“After a brief burst of activity in September when rates were almost 60 basis points lower, overall applications have declined 27 percent, driven by a pullback in refinances,” MBA Deputy Chief Economist Joel Kan said, in a statement.
Mortgage rates increased for the fourth time in five weeks, Kan said, driven by bond market volatility in advance of the presidential election and the Federal Reserve’s upcoming meeting on Nov. 7 — the day after the election.
“While near-term purchase application activity has weakened, we continue to expect housing demand from younger homebuyers to support purchase growth over the next few years as for-sale inventory loosens gradually,” Kan said.
Mortgage rates climbing
Since hitting a 2024 low of 6.03 percent on Sept. 17, rates on 30-year fixed-rate loans have been on a steady climb, hitting 6.79 percent on Tuesday, according to rate lock data tracked by Optimal Blue.
That increase is taking mortgage borrowers on a trip back in time to July, when rates were still descending from a 2024 high of 7.27 percent registered April 25.
An index compiled by Mortgage News Daily showed rates on 30-year fixed-rate loans surged to 7.03 percent on Tuesday before retreating by a single basis point Wednesday. Rates reported by MND tend to be higher than Optimal Blue’s due to an adjustment that’s aimed at filtering out the impacts of points borrowers often pay in order to get better rates.
Mortgage rates have been on the rise since Sept. 18, when Federal Reserve policymakers announced they would slash short-term rates by half a percentage point but might be more cautious about the pace of future rate cuts.
Futures markets tracked by the CME FedWatch tool expect that the Fed will approve two further rate reductions this year totalling a half percentage point, with a 25 basis-point cut on Nov. 7 seen as a certainty.
An advance estimate of third quarter gross domestic product (GDP) released Wednesday by the Commerce Department’s Bureau of Economic Analysis added to evidence that the economy is healthy but slowing down.
Economic growth cools
That initial estimate suggests Real GDP increased at a seasonally adjusted annual rate of 2.8 percent in Q3, down from 3.0 percent in Q2. Economists surveyed by The Wall Street Journal had forecast 3.1 percent Q3 GDP growth.
“With the underlying inflation backdrop looking far more reassuring, another strong quarter of growth in Q3 is no barrier to the Fed easing by 25 [basis points] next week,” Pantheon Macroeconomics Senior U.S. Economist Oliver Allen said in a note to clients.
Oliver Allen
The GDP numbers “are subject to big — and endless — revisions, and job growth is trending downwards, September’s strong print aside. Our base case is that a clearer deterioration in the growth and labor market numbers in the coming months will encourage the Fed to move more forcefully” in bringing rates down, Allen said.
Pantheon is forecasting that the Fed will bring the short-term federal funds rate down by 2.5 percentage points by the end of March. That forecast assumes a few major changes in economic policy following the election.
“This time next week we should have a clearer idea of whether that assumption is realistic, though the results of the election might not be clear until the weekend,” Allen said.
Job openings shrink
Tuesday’s Job Openings and Labor Turnover Summary (JOLTS) report showed job postings declined by 418,000 from August to September, adding to evidence that wage growth will continue to cool over coming months, Pantheon economists said in their Oct. 30 U.S. Economic Monitor.
“All told, wage growth now is slowing more quickly than inflation, bolstering the case for expecting growth in real consumption to slow over coming quarters,” Pantheon economists said.
Payroll and unemployment data set to be released Friday will also provide important metrics for Fed policymakers, although they’ll have to factor in the impacts of Hurricanes Helene and Milton and a strike by Boeing machinists.
The Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) index, showed inflation trending down toward the Fed’s 2 percent goal in August, dropping to 2.24 percent.
When the PCE index for September is published Thursday, it will provide more clues as to whether inflation is really under control.
Some observers say bond market investors who fund most mortgages are worried not only about inflation and the pace of future Fed rate cuts, but mounting U.S. debt.
“There’s no discussion by either candidate about doing anything to reduce the deficit to deal with the debt, to deal with the exploding net interest expense of the government,” Wall Street veteran Ed Yardeni said Monday of the impact that “bond vigilantes” can have on rates.
Yields on 10-year Treasury notes, which often indicate where mortgage rates are headed next, dropped 6 basis points Wednesday after the GDP report was released but climbed back to 4.27 percent.
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