Mortgage rates fell Friday to their lowest level since April 2023 after a weak employment report sent bond yields down sharply and reinforced Wall Street expectations that the Federal Reserve will cut interest rates at its September meeting.
According to Mortgage News Daily, the average rate on a 30-year fixed-rate mortgage fell 0.22 percentage points to 6.4%. That’s the lowest average rate for the most common mortgage since April 2023, according to data from Freddie Mac.
“The market is moving ahead of the Fed, lowering long-term rates, including mortgage rates, which should lead to both more home purchases and a pickup in refinancing activity,” Mike Fratantoni, chief economist at the Mortgage Bankers Association, said in a report.
On Friday morning, the Ministry of Labor announced that hiring abruptly slowed down in Julyemployers creating far fewer jobs than economists had expected, while the unemployment rate hit its highest level since late 2021. The significant failure sent stock drop as well as yields on 10-year U.S. Treasury notes, which mortgage rates closely track.
The sharp drop in mortgage rates could offer some relief to home buyers, many of whom have been priced out of the market by the double whammy of high borrowing costs and peaking home prices. record in JuneMortgage rates could fall further in the coming weeks, NAR chief economist Lawrence Yun said in a statement.
Yun noted that the yield on 10-year bonds has fallen by a percentage point, from 4.8% a few months ago to 3.8% on Friday. If mortgage rates fell by the same amount, borrowers would need $300 less to afford the monthly payment on a typical home loan, he said.
“Home buyers who were shut out of the real estate market a few months ago should check whether they can enter the real estate market if they have a stable job,” he added.
Economists say the Federal Reserve may have to cut rates more sharply than expected, given the slowing labor market. On Friday, some Wall Street economists predicted the Fed could cut its benchmark rate by 0.5 percentage points at its September meeting, compared with a previously expected 0.25 percentage point cut.
On Wednesday, the Fed held its reference interest rate Monetary policy remains steady, as expected, but Fed Chairman Jerome Powell indicated that the central bank could begin cutting borrowing costs in September, provided inflation continues to decline. He also signaled that Fed officials are closely monitoring the labor market for signs of weakness, which he said could signal the need for cuts.
Given the weaker-than-expected jobs numbers on Friday, Wall Street analysts are now predicting several additional rate cuts throughout 2024, as well as potentially deeper reductions than previously expected.
“We now expect rate cuts of 25bp at each of the remaining three meetings this year and will monitor for signs that a deeper 50bp cut could be on the cards, although this would depend on the economy and labor market weakening at a faster pace than expected,” Capital Economics said in a report released Friday.
