Mortgage rates moved higher again today on the eve of the July jobs report.
The monthly jobs report from the Bureau of Labor Statistics (BLS) is always the biggest potential mover of mortgage rates.
It carries the most weight because it can impact Fed decision making the most.
While the Fed doesn’t set mortgage rates, bond and MBS investors look to the Fed to see which way policy is headed.
Given the not-so-friendly trend lately, mortgage rates are playing defense ahead of its release.
Mortgage Rates Higher with Jobs Data on Deck
Tomorrow, we’ll get another hotly-anticipated monthly jobs report from the BLS.
The consensus is 83,000 new jobs created during the month of July, which would be well above the 57,000 added in June.
In addition, the unemployment rate is expected to hold steady at 4.2%.
If the ADP jobs report we got Wednesday is any indication, it might be a big miss for jobs tomorrow.
The ADP report had a median forecast of 75,000 new jobs created, but only came up with 44,000.
That was also well below the 95,000 total in the prior month’s report.
So maybe just maybe labor gets ugly again, as it did around this time last year?
That would be a much-needed tailwind for mortgage rates during this tough stretch.
Will We Repeat History?
Last year, we got a slew of really ugly jobs reports that sent mortgage rates back toward 6%.
It was great news for the industry (and recent home buyers looking for a rate and term refinance).
But it wasn’t so great for the economy, for obvious reasons.
Then the labor market seemed to kind of stabilize, but with inflation cooling, mortgage rates were able to continue falling and eventually hit 3.5-year lows at the end of February.
That eventually led to a sub-6% mortgage rate, the best seen since 2022.
We all know what happened next; the Iranian conflict broke out and those 5% 30-year fixed rate quotes quickly became a distant memory.
One way to get them back, outside of a peace deal with Iran, would be weak job market data.
It’s hard to root for, given the fact that people aren’t getting hired and/or are losing their jobs.
But it’s realistically the other way interest rates fall, as a weak jobs report signals a soft economy, which can prompt the Fed to cut rates. Or at least not raise them.
The jobs report tomorrow (and the next one) could dictate whether the Fed raises rates in September, or stands pat. So there is a lot at stake.
What Could Really Push Mortgage Rates Lower?
The combination of a peace deal and weak (or at least not hot) labor data would be the combination to get mortgage rates materially lower.
Those two levers are basically the only game in town right now.
And arguably, it’s more about the Mideast conflict than it is the labor market.
You get both of those things to cooperate and mortgage rates can make their way lower again.
Granted, I still believe there is some risk premium built into mortgage rates now because of the tenuous situation with Iran that won’t go away anytime soon.
Conversely, if both don’t cooperate and you’re looking at mortgage rates back in the 7s potentially.
Personally, I think that’d do some major psychological damage, even if the difference in monthly payment isn’t that substantial.
While the payment on a 7% 30-year fixed might only be $50 more per month than a rate of 6.75%, the headlines that follow would deal a major blow to the housing market.
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