Hi Friends! 

If you’re wondering where mortgage rates are going, the answer lies in keeping a close eye on the bond market.  Why? Because the bond market reacts strongly to jobs data and inflation reports—two key indicators of economic health.

When job growth is strong or inflation is stubbornly high, the Fed tends to keep interest rates elevated, which can push mortgage rates higher. On the flip side, signs of cooling inflation or slower job growth could lead to lower rates, making borrowing costs more affordable.

The Job Market: A Mixed Bag

December’s job numbers were impressive—256,000 new jobs were added, far surpassing the expected 157,000. That’s 48 consecutive months of job growth, tying for the second-longest streak in U.S. history! Even better, the unemployment rate dropped to 4.1%, well below the historical average of 5.7%.

But here’s the catch: much of the growth is happening in specific sectors like Health Care, Government, and Leisure & Hospitality. Other industries, such as Manufacturing and Utilities, are losing jobs, signaling an uneven economy.

For the Federal Reserve, a strong job market makes it harder to justify cutting interest rates. More jobs mean more spending, which can keep inflation higher than their 2% target. Unless the job market cools, the Fed is likely to maintain its cautious approach to rate adjustments.

What Does This Mean for Mortgage Rates?

For mortgage rates to drop, we need to see two things:
1️. Slower job growth.
2️. Continued signs of cooling inflation.

At the moment, the robust job market is keeping the Fed on high alert, which means borrowing costs may stay elevated for now. But as detailed job data becomes available—like the Quarterly Census of Employment and Wages (QCEW)—there’s potential for revisions. If those revisions show a weaker job market, combined with lower inflation, the Fed may feel more comfortable easing rates.

Inflation and the Fed’s Next Move

Inflation remains a mixed bag. The Consumer Price Index (CPI) rose to 2.9% in December, the highest since July. However, Core CPI (which excludes food and energy) eased slightly to 3.2%, hinting at progress.

One bright spot? Shelter costs, which make up nearly 46% of Core CPI, are showing signs of cooling. This could help inflation trend downward over time. As of now, most market analysts predict the Fed will pause at their upcoming meeting, choosing to hold rates steady while they evaluate more data.

Housing and Real Estate Impacts

On the housing front, there’s a lot to unpack. Let’s start with the positives:

• Lower Construction Costs on the Horizon: There’s talk of cutting regulations that drive up building costs, which could make homes more affordable in the long run.
• Expanding Housing Supply: A push for more homebuilding could address the inventory shortage that’s driving prices higher.

But it’s not all smooth sailing:

• Tariffs on Materials: Potential tariffs on goods like Canadian lumber could increase construction costs, offsetting the benefits of deregulation.
• Labor Shortages: Stricter immigration policies might create a shortage of migrant workers in construction, further straining the housing supply.
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Why This Matters to You

For buyers and sellers, these trends mean the housing market is in a state of transition. Elevated mortgage rates may persist in the short term, but as inflation and job growth stabilize, borrowing costs could improve.

Now is the time to stay informed and flexible. Whether you’re thinking of buying, selling, or just curious about market trends, reach out—I’m here to help you navigate these changes and make the best decisions for your real estate goals!