Well, there’s a silver lining to everything.
And while the U.S. economy appears as if it’s faltering, at least mortgage rates are lower, right?
It’s clearly bittersweet, but the only real way to to get better mortgage rates without direct intervention is with cool economic data.
Lower inflation would probably be the most ideal way of achieving that, but tariffs have clouded that path.
Instead, it appears employment data is doing the heavy lifting to bring down mortgage rates, for better or worse.
The Unwinding of Last Year’s Hot Jobs Report
What’s kind of interesting is we’re basically just unwinding the hot jobs report that arrived back on October 4th, 2024.
That now infamous September 2024 jobs report is what propelled mortgage rates higher, right after the Fed pivoted after 11 consecutive rate hikes.
Because of the awkward timing, many assumed it was the Fed cutting that pushed mortgage rates higher.
When in fact it was the ultra-hot, unexpected jobs report released just two weeks after that really did the damage.
If you recall, that blowout jobs report revealed that the U.S. economy added a whopping 254,000 jobs last September.
That more than exceeded expectations that called for a mere 142,500 new jobs added.
At the same time, both the July and August jobs reports for 2024 were revised higher, by 55,000 and 17,000, respectively.
That’s what did it. It wasn’t that the Fed had some magical powers where whatever they did, mortgage rates did the opposite.
For the record, the Fed doesn’t control mortgage rates whether they go up or down. It’s really just random and depends what else is happening in the economy.
Last year, there was a little bit of a sell the news moment when the Fed finally cut, but that was after 30-year fixed mortgage rates had fallen from 8% to nearly 6% in less than a year.
So a move like that was expected. The need to blow off steam made sense.
Here we are again in a similar boat. It’s almost déjà vu.
Except this time, it appears we are unraveling that hot jobs report from a year ago. Kind of ironic.
Labor Has Gone Cold, and Mortgage Rates Like That
- ADP said private sector employment increased by just 54,000 jobs in August
- That was below the consensus estimate of 75,000 jobs added
- The JOLTS report revealed job openings fell to the lowest point in nearly a year in July
- And a cold August jobs report from the BLS tomorrow could be the icing on the cake
Unlike last year, the trend lately has been a cooling labor market.
Instead of a surprise hot jobs report, a month ago we got a surprise ice-cold jobs report for July.
And similar to a year ago, we got revisions, except this time they were downward revisions.
Essentially, the complete opposite of what transpired last year.
That has been the driver of lower mortgage rates lately, just like the hot jobs a year ago drove them higher.
The big question now is if it continues. It certainly appears as if it’s going to, though like mortgage rates in general, there are always surprises. And it’s hard to predict what will happen.
But I can tell you that the jobs report being released tomorrow is a very big moment for mortgage rates.
It will either reinforce this downward trend we’ve been on, with 30-year fixed rates falling about 75 basis points (0.75%) from the start of the year.
Per MND, mortgage rates have fallen from around 7.25% to start the year to 6.45% today.
Or it could prove to be yet another head fake, where mortgage rates unexpectedly reverse course after showing a lot of promise.
The dilemma we face now is that in order to get even lower mortgage rates, we need labor to continue to show signs of weakness.
And clearly that’s not good for our economy as a whole. So it’s difficult to root for bad news just to get lower mortgage rates.
Unfortunately, that’s kind of where we’re at right now. Perhaps there’s a middle of the road scenario where labor doesn’t significantly weaken, but doesn’t surprise to the upside either.
Read on: How are mortgage rates set?
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.