I thought it would be a big loan week and it didn’t disappoint.
But ironically, mortgage rates are rising for a reason unrelated to jobs data.
It was comments from new Fed chairman Kevin Warsh that caused rates to jump yesterday.
Today, they will relax thanks to basic economic data, which is more important than words.
And that’s perhaps a taste of what’s to come under Warsh. Tough talk but ultimately excellent data as always.
Weak Jobs Data Gives Real Estate Ratings a Break
This week’s list of economic data was released ahead of the July 4 holiday, culminating in the BLS jobs report today.
A day earlier than normal, it was unusual and below forecast, as there were only 57,000 jobs in mid-June compared to the consensus of 115,000.
Meanwhile, April numbers were revised down by 31,000, from +179,000 to +148,000, and May was revised down by 43,000, from +172,000 to +129,000.
As a result of these revisions, the employment numbers for April and May combined were 74,000 lower than previously reported, per the BLS.
In other words, the labor market is still in doubt, despite continuing to show “firmness” during the past year and change.
Had it come in hotter than expected, there would have been more pressure on bond maturities and mortgage rates, which were close to their latest highs in the report.
Instead, the yield on the 10-year bond fell from around 4.50% to a few ticks below.
Now everyone can breathe a sigh of relief until the next batch of data arrives.
Tough Talk From Warsh But Economic Data Still Calling the Gun?
I thought the new Fed chairman, who was clearly hired by President Trump to cut rates, may be taking a tough line knowing that the data will be soft.
So one day he said “prices are too high,” leading many to believe that prices will rise.
But then he gets this weak staff report and he can’t say well, we need to look at things holistically.
Our dual mandate is price stability and promoting high employment, so we’ll stop here. We have no other choice.
Put another way, Warsh can talk tough and satisfy the hawks while letting data bail him out so he doesn’t upset the man who hired him.
Ultimately, that means he’s not much different from his predecessor, Jerome Powell, in that he remains firm and makes decisions based on data.
And of course, you are one vote and there are 11 other members of the Federal Reserve.
Estimates of Expected Increases Dropped Significantly
The weak jobs report has already reduced rate hike expectations significantly, according to CME FedWatch.
July’s chance of climbing has dropped to 17.6% today from 28.9% yesterday, and September is also now more likely to stay put instead of hiking.
It was 49.8% in favor of a 25-point increase yesterday, and now it’s down to 46%, slightly below the 46.2% chance of holding firm.
Although the Fed does not set mortgage rates, Fed rate expectations can push mortgage rates up or down.
If expectations continue to rise, loan rates could ease, especially if stability in the Middle East is maintained and oil prices continue to fall.
Read on: Use a loan rate calculator to compare different rates and payments side by side.
Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 20 years ago to help prospective (and current) home buyers better navigate the mortgage process. Follow me on X for the hottest.
