The August employment report released by the U.S. Bureau of Labor Statistics This Week in Real Estate underscores a continued deceleration in the labor market, reinforcing expectations for a potential reduction in the federal funds rate at the Federal Open Market Committee (FOMC) meeting on September 16 – 17. According to the report, the U.S. economy added a modest 22,000 jobs in August, marking the fourth consecutive month of subdued job growth. Average monthly job gains from May through August declined by 75% compared to the same period last year. While July’s figures were revised upward slightly, June’s data was adjusted downward to reflect a net loss of 13,000 jobs, marking the first monthly decline since December 2020. The unemployment rate edged up from 4.2% in July to 4.3% in August. Although still historically low, this represents the highest level since October 2021. The labor market data had an immediate impact on mortgage rates. On Friday, the average rate for a 30-year fixed mortgage fell 16 basis points to 6.29%, according to Mortgage News Daily, its lowest level since October 3, 2024, and the largest single-day drop since August 2024. For the week, the 30-year fixed-rate mortgage averaged 6.50%, down from 6.56% the previous week, according to Freddie Mac. This marks the sixth decline in the past seven weeks, bringing rates to an 11-month low. Below are key events from the first week of September impacting our business:
JOB GROWTH CONTINUES TO SLOW, SIGNALING A COOLING ECONOMY. Job growth in August came in far below expectations, according to employment data released Friday by the U.S. Bureau of Labor Statistics (BLS). The U.S. economy added just 22,000 total non-farm payroll jobs in August, which economists say is further evidence of a cooling labor market. This data comes after the estimates for the prior two months were revised down by 21,000 jobs, and a net job loss of 13,000 in June. In addition, the unemployment rate ticked up slightly to 4.3% with 7.4 million people unemployed. This is the highest the unemployment rate has been since October 2021. “The job market is softening, with even sectors like health care, which had steadily contributed to job growth, now slowing,” Mike Fratantoni, the Mortgage Bankers Association’s senior vice president and chief economist, said in a statement. Economists agree that August’s softer jobs numbers nearly guarantee that the Federal Reserve will cut interest rates at its meeting later this month. “With inflation not reaccelerating and job growth fading, the Fed may see this as an opportunity to recalibrate – shifting policy back toward neutral, rather than launching a full pivot to stimulus,” said Sam Williamson, senior economist at First American. “A rate cut in September would mark the first step in that adjustment, and could put downward pressure on long-term yields, offering some relief to prospective home buyers facing elevated mortgage rates and prices.” Read the full story here.
MORTGAGE RATES PLUMMET BACK TO FALL 2024 LEVELS. It’s a well-known fact that the monthly jobs report is more capable of causing big reactions in rates than any other economic data. It happened last month in grand fashion, and it is happening again this morning. In general, weaker jobs numbers prompt investors to buy bonds. When investors buy bonds, the price of those bonds goes up. When bond prices go up, rates go down. Today’s net effect is an average top tier 30yr fixed rate drop from 6.45% yesterday to 6.29% today. This is back in the same range as the low rates in the Fall of 2024. Read the full story here.
FED GETS GREEN LIGHT FOR INTEREST RATE CUTS AS UNEMPLOYMENT RATE JUMPS TO 4-YEAR HIGH. The Federal Reserve is now seen as likely to cut interest rates multiple times before the end of the year, following another weak jobs report that showed unemployment jumping to a four-year high. The unemployment rate rose to 4.3%, up slightly from 4.2% in July but hitting the highest level seen since October 2021. Mortgage rates hinge primarily on the yields of 10-year Treasury notes, which plunged Friday to their lowest level since early April. It signals further easing for mortgage rates is likely in the coming days, after the average 30-year mortgage rate fell to an 11-month low of 6.5% this week. Although a quarter-point cut to the Fed’s policy rate had been viewed as likely at the next Federal Open Market Committee meeting on Sept. 17, the weakness of the August jobs report raised speculation of a larger half-point cut. Bond markets also signaled higher confidence that the Fed will cut rates three times before the end of the year, estimating the probability of three cuts at 67% following the jobs report, according to the CME Group’s FedWatch tool. Read the full story here.
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