Mortgage rates held steady last week despite recent signs of easing in the labor market, according to HousingWire's Mortgage Rates Center, which said mortgage rates remained above 7% mainly due to a lack of clarity about when the Federal Reserve will start cutting its benchmark interest rate.
The average rate on a 30-year conforming loan was 7.11% on Tuesday, unchanged from a week ago. At its peak this year, the same loan reached 7.57% in April. Meanwhile, the 15-year conforming rate stopped rising sharply, reaching 6.93% on Tuesday, down from 6.99% last week.
Logan Mohtashami, principal analyst at HousingWire, said mortgage rates, which historically move in tandem with the 10-year Treasury yield, “rose sharply” two weeks ago but then fell after Friday's jobs report.
“Bond yields have certainly come down and pricing has improved slightly, but it's nothing to write home about,” Mohtashami said. “Mortgage rates have become more stable thanks to spreads.”
According to Mohatashami, the spread between 30-year mortgage rates and 10-year mortgage yields has been an issue since 2022 and the situation has worsened since the banking crisis in March 2023. He added, “If we consider the worst level of the spread in 2023 today, mortgage rates would be 0.56% higher now.”
Data released Friday by the Bureau of Labor Statistics showed nonfarm payrolls rose by 206,000 in June, up from a revised 218,000 in May (down from 272,000). Economists say it's good news that the Fed will start cutting interest rates, but it's unclear when that will happen.
“With inflation remaining elevated and no concrete evidence of when the Fed will begin a rate-cutting cycle, headlines and data continue to dictate rate movements,” said Sarah Alvarez, vice president of mortgage banking at William LaVais Mortgage.
Fed Chairman Jerome Powell has said that officials expect it will be appropriate to lower the target range for the federal funds rate once they have greater confidence that inflation is moving sustainably toward their 2% target. And stop me here if you've already heard it, but they're not there yet.
“Data from the first quarter of this year did not support that great deal of confidence,” Powell said in his semi-annual monetary policy report to Congress on Tuesday morning. “However, the latest inflation measures indicate some further progress, and further availability of better data will strengthen our confidence that inflation is moving sustainably toward 2 percent.”
In addition to monetary policy, uncertainties related to the presidential election are also affecting markets, Alvarez said.
“There's always a lot of uncertainty surrounding elections, and the results of the recent debates pushed interest rates up more than expected,” Alvarez said. “But with continued data showing inflation and the economy weakening, interest rates will likely start to fall more sharply. Anyone expecting a straight line of decline will be disappointed.”