Mortgage rates jump following strong jobs report
While higher levels of employment is good news for real estate in the long term, rising rates may put a damper on home sales this fall.
Key points:
- The September jobs report was unexpectedly strong, with employment increases far above August’s numbers.
- Wages also rose 4%, which was higher than expected.
- The daily mortgage rate average jumped into the 6.5% range, up from around 6% a few weeks ago.
A surprisingly strong jobs report sent mortgage rates higher Friday, potentially reversing a trend of stabilizing rates — and increasing borrowing costs for buyers who were finally getting a leg up in the housing market as the homebuying season begins to wind down.
Total nonfarm employment rose by 254,000 in September, significantly higher than August's revised increase of 159,000, according to U.S. Bureau of Labor Statistics. The unemployment rate dipped slightly to 4.1%.
Wages rose 4%, which was also higher than expected.
Mortgage interest rates shot upward on the news, according to Mortgage News Daily, which pegged the 30-year mortgage rate at 6.53% for Oct. 4, up from 6.26% the day before.
Rates will continue to move around in the coming weeks, but they should still end the year at around 6.2%, predicts Lisa Sturtevant, chief economist at Bright MLS.
Impact on home sales, future rate cuts
The jobs report could be a mixed blessing for the industry. On the one hand, more jobs mean more potential homebuyer demand, but the ensuing rise in mortgage rates come at a time when many consumers — and real estate agents — expected them to fall.
"This just reinforces the notion that trying to market-time the best mortgage rates can backfire," said Lawrence Yun, chief economist at the National Association of Realtors.
Mortgage rates had been fairly flat following the Federal Reserve's 50-basis point rate cut on Sept. 18, edging up slightly in the past week, suggesting that the markets had already priced in the Fed's move. The September jobs report dampens speculation that another 50-basis point rate cut is coming in November, but a 25-point reduction remains on the table.
"Even with the solid job figures, the Federal Reserve will continue to cut its short-term interest rates but with more caution," Yun said.
Sturtevant agreed, adding that the upcoming inflation report will help dictate the Fed's next move.
"If inflation is still heading toward the 2% target, we should expect a November rate cut," Sturtevant said.
Even with Friday's bump, rates are still substantially lower than a year ago, but it's unclear how consumers will respond to rising rates in the coming weeks.
"Many consumers appear to be waiting for (lower rates) — an understandable approach when home prices continue to be near record highs," said Danielle Hale, chief economist at Realtor.com. "The housing market is now in the seasonally slower period that offers advantages to flexible buyers, but is marked by a slow-down in demand."
Improving affordability could be offset by waning confidence
The strong jobs report suggests that wage growth is outpacing inflation, which will help improve housing affordability for some buyers, putting a home purchase within reach.
Another positive is the growth of the construction industry: Residential construction employment is now at 3.4 million, with average monthly job gains at 3,450 a month, according to the National Association of Homebuilders. That suggests the industry is ramping up to build more homes, which could help make a dent in the housing deficit.
But other key factors could influence what happens to the housing market throughout the remainder of the year, said Sturtevant. She noted that job seekers are having a harder time finding work as the hiring rate ticked down and consumer confidence fell in September.
"Confidence about the economy — and about their own personal financial situations — will be a critical factor driving housing market conditions in the fourth quarter, perhaps even more so than high-level employment figures," Sturtevant said.