Mortgage executive says new figures are a good sign for the housing market
There’s still no consensus about whether the Federal Reserve will cut interest rates again next month, although a stronger-than-expected September jobs report saw financial markets sharply lower expectations of a reduction.
Ten-year Treasury yields, which directly impact longer-term fixed mortgage rates, have been on a choppy path over the past week as traders wait for more clues about how the central bank sees the economy faring in the months ahead.
The labor market added a surprisingly high 119,000 jobs in September, according to new Bureau of Labor Statistics data, although Mortgage Bankers Association (MBA) senior vice president and chief economist Mike Fratantoni suggested the jobs outlook is still soft enough to justify a December Fed cut.
Markets, though, see only a 35% chance that the central bank will lower rates, according to the CME FedWatch Tool, largely unchanged from expectations prior to that jobs report.
Robust employment outlook could boost housing market
While the new labor market statistics leave the mortgage industry none the wiser about a potential December cut, World Home Loans president and chief executive officer Brian Cooke told Mortgage Professional America the report was a positive one for the industry.
That’s because it indicated a resilient employment outlook even with the economy and housing market facing plenty of challenges.
“It shows the labor market is still solid,” Cooke said. “If that strength continues, buyers stay confident and credit stays accessible. Job stability supports housing demand even with higher rates.”
Asked how a period of continued job growth might impact borrower behavior in the near term, even with rates elevated, he suggested confidence will only strengthen if the labor market improves, with a potential positive knock-on effect for the housing outlook.
“More people feel secure enough to buy. They focus more on monthly payment than rate, and overall borrower stability improves,” he said. “Strong job growth helps balance out the pressure of higher rates.”
The Fed is next scheduled to meet on December 9-10 – and while that move won’t directly move mortgage rates up or down, it could still have a significant impact on bond yields.
What are Fed officials saying about a cut?
While President Trump renewed a regular line of attack on Fed chair Jerome Powell on Wednesday and demanded once more that rates move lower, Fed decisionmakers don’t seem in any hurry to rubber-stamp another cut.
At a Thursday event in Washington, Fed governor Michael Barr underlined his concern about sticky inflation and said the central bank needs to take a “careful and cautious” approach to monetary policy.
The Fed’s Bank of Chicago president Austan Goolsbee, meanwhile, also appeared unwilling to countenance a December cut, describing himself as “uneasy” about inflation that “seems to have kind of stalled out and, if anything, given warnings of going the wrong way.”
And Bank of Cleveland president Beth Hammack highlighted other dangers of cutting rates too soon. “Lowering interest rates to support the labor market risks prolonging this period of elevated inflation, and it could also encourage risk-taking in financial markets,” she said.
“This means that whenever the next downturn comes, it could be larger than it otherwise would have been, with a larger impact on the economy.”
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