Summary:
Mortgage rates have plunged to their lowest level in nearly a year, falling to an average of 6.29% after weak jobs data boosted expectations of Federal Reserve rate cuts. With some lenders quoting rates in the high 5% range, the drop could revive a sluggish housing market stalled by high borrowing costs and home prices.
Bond Yields Tumble on Economic Jitters
Bond yields tumbled Friday as a weaker-than-expected jobs report raised expectations for rate cuts from the Federal Reserve. The 10-year Treasury yield dived 10 basis points to 4.076%, the lowest since April.
Meanwhile, the average rate on the 30-year fixed mortgage sank 16 basis points to 6.29%, according to Mortgage Daily News—marking the biggest single-day decline since August 2024 and the lowest level since October 3, 2024.
“Many lenders are priced better than 10/3/24 at rates of 6.125%, and many lenders will be quoting in the high 5’s today,” said Mortgage News Daily Chief Operating Officer Matt Graham in a post on X.
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A Familiar Situation, but Different This Time
While mortgage rates plunged a year ago under similar circumstances, today’s backdrop has shifted. Then, like now, the unemployment rate was ticking higher, triggering the Sahm rule and sparking fears of a recession. Expectations for Fed rate cuts sent mortgage rates lower.
The Fed responded with a jumbo-sized half-point cut, surprising Wall Street. Soon after, jobs data improved, fueling fears that the cuts could overheat the economy. Mortgage rates rebounded.
Graham acknowledged the parallels: “Last year’s rug pull was driven by a big reversal in econ data. If data stays downbeat this time around, no reason to expect a repeat on the same scale, if at all.”
Job Market Weakness Reshapes Fed Outlook
For much of this year, the labour market seemed resilient, even as President Donald Trump’s tariffs kept inflation—and borrowing costs—elevated. But July’s jobs report drastically altered the outlook.
On Friday, the Labor Department reported payroll growth of just 22,000 in August, far below forecasts. Revisions showed June actually saw a decline. Wall Street now widely expects the Fed to begin an easing cycle this month, with policymakers shifting their concerns from tariff-induced inflation to a tariff-induced job slump.
Torsten Sløk, chief economist at Apollo Global Management, noted: “Job growth in tariff-impacted sectors is negative, while sectors not directly impacted by tariffs are declining but still in positive territory.”
Potential Boost for the Housing Market
If borrowers can secure mortgage rates in the low 6% range—or even below—that would mark a huge improvement from May, when rates were above 7%.
High prices and borrowing costs sidelined buyers during the critical spring and summer selling seasons, leaving the housing market largely stagnant. Existing home sales have been flat even as listings increased, and new single-family home construction remains sluggish.
Minutes from the Fed’s last meeting revealed concern among some policymakers about the state of the housing market. The number of U.S. homeowner households even fell by 0.1% in the second quarter to 86.2 million—the first such decline since 2016.
Chen Zhao, Redfin’s head of economics research, pointed to “rising home prices, high mortgage rates, and economic uncertainty, [which] have made it increasingly difficult to own a home.”
