Hi Friends! 

We’ve had some big news lately that’s making waves in the mortgage world. If you’ve been watching rates and wondering what’s going on, let me break it down for you in a way that’s easy to understand. Spoiler alert: the job market is stronger than expected, and that’s shaking things up.

 Key Labor Market Insights

The latest jobs report for September blew past expectations—254,000 new jobs were created, way more than the 140,000 that experts predicted. And on top of that, previous months’ job numbers were revised up by another 72,000 jobs, which is pretty rare. 

Unemployment also ticked down from 4.2% to 4.1%, and full-time employment bounced back with a solid gain of 414,000 jobs. If you’ve been following the trends, this isn’t a shock—August’s numbers were hit by temporary layoffs, so this rebound was kind of expected. 

Wages also saw some growth, which is great for employees, but it’s one of those things that can push inflation up, and that’s why the bond market reacted with a bump in mortgage rates.

What’s Going on in the Private Sector?

On the private side, we saw 143,000 new jobs added in September—another strong showing. The good news is that the job gains were spread across various sectors, which means fewer industries are losing jobs compared to August. But not everything is rosy: small businesses (those with fewer than 50 employees) actually lost 8,000 jobs, while medium and large companies saw big gains.

Wage growth is slowing, though, for both people who stay in their jobs and those who switch. This is actually good news for controlling inflation, which means we might see less pressure on the Federal Reserve to keep rates high. 

Is the Labor Market Showing Some Weakness?

Even though job growth was strong, there are still signs that the labor market might be softening. Job openings jumped to 8 million in August (up from 7.7 million in July), but fewer people are quitting their jobs, which suggests they’re not as confident about finding something new. The hiring rate has dropped too, hitting its lowest point since 2013.

There’s also been a slight increase in initial jobless claims, which could be tied to more people working gig economy jobs (think Uber or Door Dash) instead of filing for unemployment. Overall, though, companies are slowing down on hiring, which could be an early indicator of changes in the economy.

What Does This Mean for Mortgage Rates?

So, what’s the big takeaway? Mortgage rates have risen because the bond market is reacting to these mixed signals from the job market. While job growth is strong, other factors, like wage pressure easing and fewer people switching jobs, suggest there might still be room for the Federal Reserve to cut rates down the road—but probably not as much or as fast as people were hoping.

Current projections are pointing to gradual rate cuts, with a potential 25 basis point reduction at each of the upcoming Fed meetings in November, December, and early next year. This would eventually bring the rates back down to a range of 3.75%-4.75% by early 2025.

What Should You Watch for This Week?

There are a few key events to keep an eye on this week that could impact mortgage rates even further:

- Energy Outlook (Tuesday): Energy prices affect inflation, which could influence the Fed’s stance on interest rates.

- Fed Meeting Minutes (Wednesday): This will give us a deeper look into the Fed’s thinking around inflation and rate cuts.

- 10-Year Note Auction (Wednesday) & 30-Year Bond Auction (Thursday): These could move the bond market, and by extension, mortgage rates.

- September CPI Inflation Data (Thursday): This is the big one—if inflation comes in higher than expected, mortgage rates could climb even more.

What About the Housing Market?

Now, you might be wondering: “How low do mortgage rates need to drop before homebuyer demand picks up again?” According to recent surveys, buyers seem to be waiting for rates to dip below 5.50%. When rates get down to the 5%-5.49% range, nearly half of potential buyers say they’d be ready to jump back into the market.

But with rates currently sitting above 6%, many are waiting on the sidelines. The good news is that if the Fed continues to ease rates slowly over the next year or two, we could see mortgage rates hitting that sweet spot by mid-to-late 2026.

While the job market remains strong, there are signs of slowing, especially when it comes to hiring and small business growth. These mixed signals are keeping the Fed cautious, which is why we’re likely to see small, gradual rate cuts over the next year or two. For now, it’s a waiting game—one where keeping an eye on economic data could help you time your next move in the housing market.