Mortgage Rates Rose Before Jobs Report — What’s Next?

Mortgage rates surged to 6.53% after a strong September jobs report showed higher-than-expected employment growth, signaling a robust economy. This jump in rates, up 27 basis points, disrupted hopes for lower mortgage costs in the near term. The Federal Reserve may slow its rate-cutting pace as the strong labor market allows for a more cautious approach. Freddie Mac noted that the decline in mortgage rates had already stalled before the jobs report due to a combination of rising short-term rates and geopolitical tensions. Although mortgage rates have dropped over the past year, the recent uptick may persist for now.

Analysts are divided on what’s next for interest rates. Some suggest that a weaker upcoming jobs report could prompt rate cuts, but others predict higher rates in the short term. The 10-year treasury yield, which influences mortgage rates, has also risen, raising concerns about increasing mortgage costs. Despite this, the broader housing market outlook remains positive, with slower home price growth, rising incomes, and increasing inventory improving conditions for homebuyers as the year progresses.

Inventory Challenges Hinder Housing and Lending Growth

Despite some optimism from lower mortgage rates and pent-up demand, the housing market continues to struggle with low inventory, according to new research from Veros Real Estate Solutions. While inventory has increased slightly over the past year, it remains below pre-pandemic levels. Many homeowners, locked into mortgage rates below 4%, are reluctant to sell, contributing to the supply shortage. This, coupled with high home prices, has left many potential buyers priced out of the market.

Though some moderation in price growth is expected, Veros forecasts a modest 3.1% home price appreciation over the next year, slightly down from previous predictions. The recent dip in mortgage rates offers hope for increased sales, but the market may not see significant movement without further price adjustments. As things stand, low supply continues to be a substantial hurdle in driving sales growth.

Housing Confidence Grows as Optimism for Mortgage Rates Reaches Record Highs

The Fannie Mae Home Purchase Sentiment Index (HPSI) rose by 1.8 points in September, reaching 73.9, its highest level in over two years. A record 42% of consumers now expect mortgage rates to decline within the next year, up from 39% in August and 24% in June. Despite this optimism, many consumers anticipate home prices to rise as well, which may offset any potential improvements in affordability. Only 19% of respondents feel it’s a good time to buy a home, while 65% think it’s a good time to sell. Overall, the index is up 9.4 points from last year.

Mark Palim, Fannie Mae’s Chief Economist, noted that although most consumers still consider it a bad time to buy, the growing optimism about falling mortgage rates is boosting housing sentiment. However, this has not yet translated into increased home sales, which are on track for their lowest annual total since 1995. Interestingly, sentiment among renters, a key group of potential first-time buyers, has also improved. The percentage of renters believing it’s a good time to buy has increased from 13% to 20%, and those expecting mortgage rates to fall have risen from 16% to 30%, indicating that some buyers may be ready to enter the market.