Bad News For Jobs, Good News For Mortgages

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Friday’s tepid jobs report means mortgage rates might finally be poised to fall. The U.S. economy created few jobs in August, the Labor Department reported, news that could set the stage for both a rate cut by the Federal Reserve and a downturn in mortgage rates.

“Mortgage rates dropped to new 2025 lows today after a weaker-than expected August jobs report pushed the 10-year Treasury yield — the key benchmark for mortgage pricing — to its lowest level since April,” says Bill Banfield, chief business officer at Rocket Mortgage.

The average rate on a 30-year mortgage stood at 6.55 percent as of Wednesday, according to Bankrate’s national survey of lenders.

Employment, the Fed and mortgage rates

The employment report showed that job growth has slowed and job openings have declined, creating a drag on economic activity. Nonfarm payrolls increased 22,000 in August, but the Labor Department’s revised reports for earlier months revealed that employment declined in June, the first shrinking jobs total since 2020. Meanwhile, the jobless rate moved up to 4.3 percent.

“Unemployment has risen, and new hiring has ground to a virtual halt,” says Mark Hamrick, Bankrate’s chief economic analyst.

Economists had been divided about whether the Fed would cut rates at its Sept. 16-17 meeting. Inflation is still running above the Fed’s 2 percent target, arguing against a trim to the federal funds rate. On the flip side, the weaker-than-expected employment outlook augurs a rate cut.

If the data show rising inflation in August, the Fed’s decision will be complicated.

— Lisa Sturtevant
Chief Economist, Bright MLS

“Today’s jobs report makes it almost certain that the Federal Reserve will cut the short-term federal funds rate when they meet later this month. A 25-basis point is the most likely move by the central bank,” says Lisa Sturtevant, chief economist at Bright MLS, a listing service in the Mid-Atlantic region. “But there is still a wildcard out there. We will get August inflation data next week. Inflation has been stuck around 2.7 percent this summer, slightly higher than where it was in the spring and still above the Fed’s stated target of 2.0 percent. If the data show rising inflation in August, the Fed’s decision will be complicated.”

Last September, when the Fed cut its benchmark interest rate, mortgage rates actually rose, illustrating a key point: The central bank doesn’t control mortgage rates, though its decisions help set the tone.

The true driver of fixed mortgage rates are 10-year Treasury yields, which dropped on the weak jobs report, down to about 4.09 percent as of Friday afternoon. That figure had been above 4.2 percent in recent weeks.

Should borrowers wait for the Fed cut?

The decline in mortgage rates is welcome news for homebuyers, who have been scared off by the combination of record-high home prices and rates well above pandemic levels. If you’re ready to buy, now could be the most opportune time.

“Participants in the housing market should not try to time rates,” Sturtevant says. “They certainly should not expect the Fed’s decision itself to materially impact mortgage rates in the short-term. People who want to buy and are financially ready to do so should take advantage of more inventory and more opportunities for negotiating. Sellers in most markets are starting to reset expectations on pricing and are prepared to negotiate in a way they have not over the past few years.”

For those who purchased when rates were above 7.5 percent, the backslide opens an opportunity to refinance. 

“Homeowners who are waiting for the Fed to cut rates to refinance can act now,” Banfield says. “Investors are already pricing in a Sept. 17 Fed rate cut to lower rates.”