Interest rates have been falling as investors in the bond market, which funds most mortgages, react to the latest economic news and Federal Reserve policymakers scaling back tightening.
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Mortgage rates fell for a third straight day on Friday as the latest data from the U.S. Labor Department showed employers added fewer jobs than expected in April, pushing the unemployment rate to nearly 4%, a level not seen in more than two years.
The U.S. economy added 175,000 jobs in April, down from 315,000 in March, marking the weakest growth since October 2023.
On Wednesday, Federal Reserve policymakers announced their intention to slow the pace of “quantitative tightening” – the reduction of the central bank’s $7 trillion balance sheet – to $40 billion per month, less than half the pace expected two years ago. .
Job growth slowed in April
Employment changes (by month). The red bars are the latest forecasts, including revisions to the previous February and March forecasts. Source: U.S. Bureau of Labor Statistics.
Economists at Pantheon Macroeconomics said in a note to clients: “This report is not bad enough to trigger a complete rethink by the Fed, but if July data continues to be weak as we expect, the situation will be It’s different. “The slowdown in wage growth happens to be [National Federation of Independent Business] It is recommended to do so, the signal for the future is clear.
The futures market tracked by the CME Group’s FedWatch tool last week predicted that the Fed is unlikely to cut interest rates by more than 25 basis points this year. On Friday, investors recalibrated their bets on a 61% chance the Fed would cut interest rates two or more times before the end of the year, with the first rate cut now expected to come in September rather than December.
Pantheon economists stood by their forecast that the central bank would lower the federal funds rate by a full percentage point starting in September.
“Businesses – especially small businesses – are dealing with the lagged effects of sharp rises in interest rates and tightening lending standards, making working capital more expensive and harder to come by,” Pantheon economists said. “To some extent, , which inhibits hiring and lowers the threshold for layoffs.”
The unemployment rate fell below 4% in February 2022 and was close to that level again in April, reaching 3.9%, up half a percentage point from a year ago.
The Fed has no direct control over long-term interest rates, but investors in the bond market, which funds most mortgages, are reacting to this week’s news.
10-year Treasury yield fell 25 basis points
The 10-year U.S. Treasury yield, which typically predicts mortgage rate trends, fell 7 basis points on Friday to 4.50%, down 25 basis points from the 2024 high of 4.75% set on April 25.
Mortgage News Daily’s survey of lenders showed that rates on 30-year fixed-rate loans fell for a third straight day on Friday to 7.28%, down 24 basis points from the 2024 high of 7.52% set on April 25.
Mortgage rates ease from 2024 highs
Data tracked by Optimal Blue trailed a day later, showing the average rate for borrowers locking in a 30-year fixed-rate mortgage on Thursday was 7.21%, down 6 basis points from the 2024 high of 7.27% recorded on April 25.
Borrowers who took out jumbo loans are seeing spreads on conventional mortgages widen as rising interest rates and defaults on commercial loans put pressure on the regional banks that typically source these loans.
Rates published by Mortgage News Daily (MND) are higher than rates published by Optimal Blue because MND’s rate index is adjusted to take into account the points borrowers typically pay to obtain a lower interest rate. Optimal Blue uses the actual interest rate offered to borrowers to lock in interest rates, regardless of whether they pay points.
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