October jobs report will influence Fed policy, mortgage rates path

Employment data for October is set to be released Friday, and it will go a long way in determining the path for mortgage rates, which have surged upward in the past month.

At HousingWire’s Mortgage Rates Center on Tuesday, the average rate for 30-year conforming loans was 6.72%. That’s up 10 basis points (bps) from one week ago and 41 bps higher than on Sept. 18, when the Federal Reserve lowered benchmark rates by half a percentage point. The average 15-year conforming rate has jumped 58 bps since Sept. 18 and now stands at 6.28%.

The Fed is meeting again next week and will announce another interest rate decision on Nov. 7. Interest rate traders are placing near-unanimous odds on a cut of 25 bps, according to the CME Group’s FedWatch tool, which would bring the federal funds rate to a range of 4.5% to 4.75%.

The forecast is more conservative for the Fed’s December meeting as roughly 75% of market experts anticipate another 25-bps cut and 25% call for no cut.  

Next week’s decision from Fed policymakers hinges heavily on the October jobs report that will be released Friday. Last month’s report showed that employers beat market estimates by adding 254,000 jobs in September. Additionally, the job creation numbers for July and August were revised upward by 72,000, stoking fears of higher inflation that has recently come under control.

“It’s going to be all about the jobs report,” Melissa Cohn, regional vice president at William Raveis Mortgage, said in recent commentary about the Fed’s next move. “There’s no point in speculating in anything until we see what the jobs report is. If the jobs report comes out and we see that all of a sudden, the number of new jobs created has dropped significantly, that will support at least a quarter-point rate cut.”

Data released Tuesday by Redfin showed that affordability has declined for prospective homebuyers due to the recent increases in mortgage rates. Citing data from Mortgage News Daily, Redfin said today’s 7% average rate provides $33,000 less in purchasing power compared to the 6.11% average rate in mid-September.

Put another way, a homebuyer with a $3,000 monthly housing budget can afford to buy a home for $442,500 at a rate of 7%, while they could’ve purchased a home for $475,750 at a rate of 6.11%. The monthly payment on the median-priced U.S. home of $428,000 is now $2,895, which is $200 higher than it was six weeks ago.

“My advice for buyers is to focus on finding a house they love and try to negotiate on things they have some control over, like the sale price and home repairs,” Chen Zhao, Redfin’s economist research lead, said in the report. “Sellers should know Redfin agents are reporting that there are buyers out there, but they’re mostly looking for move-in ready homes in good condition.” 

New data from First American showed that housing affordability improved in September, immediately before and after the Fed’s rate cut. The analysis showed that nominal household incomes rose 3.1% and the 30-year fixed mortgage rate was down 1 percentage point year over year. This equated to homes being 9.2% more affordable than in September 2023, although First American reported that homes remained 36% less affordable than their pre-pandemic historic average.

First American also noted the benefits tied to rising levels of home equity. Home prices have increased each year since 2012, so even for someone who purchased a home in 2006 and saw significant depreciation due to the housing crisis, their financial gains have outpaced those of the U.S. renter population.

“While the owner gained nearly $170,000 in equity (since 2006) due to appreciation, a renter spent over $229,000 in rent over the same period,” the report explained.