Mortgage Rates Experience Significant Single-Day Increase: Report

Mortgage rates experienced an increase of more than 0.25 percent on a single day following a government report that indicated a strong labor market.

Record Single-Day Jump in Mortgage Rates

Data from the Mortgage News Daily (MND) mortgage rate index shows that the average 30-year fixed-rate mortgage rate rose 27 points from 6.26 percent to 6.53 percent on Friday. This represents one of the largest single-day rate increases ever recorded by the MND.

The Impact of a Strong Labor Market

A robust employment situation often leads to increased customer demand for mortgages, which can keep rates higher and reduce the likelihood of a rate decline. The U.S. Bureau of Labor Statistics (BLS) released its employment situation summary report for September, which showed that 254,000 new jobs were added last month. This number far exceeded the 140,000 jobs that experts had estimated. Furthermore, the unemployment rate dropped for the second consecutive month, from 4.2 percent to 4.1 percent. This strong jobs report led to a surge in mortgage rates.

Expert Views on the Economy and Mortgage Rates

Mike Fratantoni, chief economist at the Mortgage Bankers Association (MBA), suggested that the stronger-than-expected September employment report indicates a “successful slow landing” for the American economy. However, he also expressed concerns that inflation may not align with the Fed’s 2 percent target, which could slow the anticipated pace of rate cuts. The Federal Reserve had already reduced its benchmark interest rates by 50 basis points last month, marking the first such rate cut since it began increasing rates in 2022. The agency also signaled an additional 50-point cut for this year. Fratantoni mentioned that the MBA predicts longer-term rates, including mortgage rates, to remain within a relatively narrow range over the next year. He added that the positive employment report could push mortgage rates to the top of that range, but he expects mortgage rates to stay close to 6 percent over the next 12 months.

The Effect of Mortgage Rates on the Housing Market

An increase in mortgage rates could potentially dampen an already sluggish housing market. In the first eight months of 2024, only 25 out of every 1,000 homes in the country were sold, marking the lowest rate in at least three decades, according to a press release by Redfin. The real estate brokerage identified high mortgage rates as one of the main reasons for the low home turnover rate. It noted that many homeowners are choosing to delay selling and purchasing another home due to the higher rates, a phenomenon known as the ‘lock-in effect’. Despite the recent dip in rates, there has not been a significant increase in sales. In fact, nearly half of all U.S. homes for sale in August were on the market for at least 60 days, the highest share since August 2019.

Expert Opinions on the Housing Market

Redfin senior economist Sheharyar Bokhari noted that while home sales usually increase when mortgage rates fall, the recent decrease in rates has not sparked this trend. Instead, sales are dropping and homes are remaining on the market for longer periods. Dutch Mendenhall, founder of RAD Diversified, a real estate investment trust, suggested in a July interview that buyers with the means to purchase a home should proceed rather than adopting a wait-and-see approach. He believes that loans will eventually become more affordable, at which point homeowners can refinance to secure the lower rates.

Bottom Line

The recent single-day jump in mortgage rates serves as a stark reminder of the interconnectedness of various economic factors. The strong labor market, while a positive indicator for the economy, has led to an increase in mortgage rates, which could potentially impact the housing market. What are your thoughts on this development? Feel free to share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.