Top 3 takeaways from a hot summer week of economic news 

It may be the dog days of summer, but it was still an eventful week for economic data that helps shape the housing market.

The biggest surprise was how fast the labor market cooled in July. The jobs report found unemployment rose for the fourth month in a row, hitting 4.3% in July. The economy added 114,000 jobs, well below the 12-month average gain of 215,000, said Hannah Jones, senior economic research analyst at Realtor.com.

This news came after the Federal Reserve decided to hold off on cutting rates in July but signaled that a September cut was on the table.

That sent average mortgage rates, which were already declining earlier in the week, plummeting. Mortgage News Daily's survey pegged the 30-year fixed-rate mortgage at 6.4% on Aug. 2, down from 6.62% the day before.

That has intensified fears the Federal Reserve waited too long to start cutting interest rates, said Odeta Kushi, First American's deputy chief economist. That also intensified recession fears instead of a soft landing. The Dow Jones Industrial Average dropped more than 600 points in Friday's trading.

On the flip side, Kushi said the jobs report data increased the chances that the Federal Reserve will make a bigger first cut in rates, going for a 50-basis-point slice in rates instead of the expected 25-basis point cut.

As investors and economists mull over the labor market data, the next report on inflation later this month may be the clincher when it comes to rate cuts.

"If the inflation data for July continues to show a decline, it is all but certain that the Federal Reserve will cut," said Lisa Sturtevant, chief economist at Bright MLS.

Here are two other top takeaways from the economic data this week:

Homebuyers remain on the sidelines: If the labor market continues to worsen, home sales may not perk up even if there are rate cuts.

"Home buyers need to feel confident about their jobs to make what is likely to be the biggest financial decision of their life," Kushi said.

While not a great jobs report for July, Kushi did note a couple of positives: The 4.3% unemployment rate is historically low and the overall labor market grew, with more people employed and unemployed in July.

Whatever the confidence level of potential homebuyers are, they aren't jumping into the market so far this summer. Pending, existing and new home sales have all been down year-over-year leaving houses on the market longer. 

Mortgage purchase applications were down 1% from a week before, according to the Mortgage Bankers Association. It is now down 14% compared to the same week a year ago.

In his weekly report, Mike Simonsen, founder of Altos Research, said it seems unlikely that home sales will rebound much for the rest of 2024. Along with fewer buyers, there are fewer sellers on the horizon as new listings have slowed.

Weekly sales contracts have remained below last year even as mortgage rates have steadily declined in the past month, showing a lack of enthusiasm from buyers and sellers.

"I would have expected to see some slight improvement in purchases, but we haven't seen any," Simsonsen said, speculating that homebuyers will continue to wait and see how low rates go.

Inventory continues to climb: While new listings have slowed, overall inventory continues to rise.

In its July report, Realtor.com estimates homes actively for sale are 36.6% higher than a year ago. Redfin's four-week rolling report found that active listing increases have been slowing, however.

With homes staying on the market an average of 50 days in July, Realtor.com reports that it is approaching pre-pandemic levels.

Simonsen said inventory will probably peak in October before seasonality kicks in and homes get pulled off the market for the holiday season.