A strong jobs report ‘complicates’ the mortgage rate outlook
The U.S. added 172,000 jobs in May, which could boost consumer confidence. But it ups the odds of a June rate hike and will likely keep mortgage rates elevated.
Today's employment data surpassed expectations, making an interest rate cut unlikely when the Federal Reserve meets on June 16-17.
The U.S. economy added 172,000 jobs in May, well above forecasts of roughly 100,000 new jobs, according to the latest Employment Situation report from the Bureau of Labor Statistics.
A continuing trend: May marked the third consecutive month of job growth above 100K, and the June 5 report included upward revisions for March and April that added another 93,000 jobs — contrary to concerns that the numbers for those months, which also exceeded expectations, might be revised down, according to Realtor.com Senior Economist Jake Krimmel.
"For the Fed and the broader economy, an improving labor market is good news in and of itself — but perhaps more importantly because it means one fewer fire to put out," Krimmel said. "It lets the Fed focus squarely on inflation, which is where its attention belongs."
An increased chance of rate hikes? The data suggests that "the next move on Fed rates is more likely up than down," Krimmel noted — but that doesn't necessarily mean mortgage rates will rise in tandem. Factors like geopolitical instability and the direction of the Iran war are more likely to influence mortgage rates, Krimmel said, with daily headlines continuing to push rates up or down.
The bottom line? It's hard to predict where the market will go next, according to Sam Williamson, senior economist at First American. "For housing, stronger hiring helps housing demand, but complicates the outlook for mortgage rates, possibly delaying relief many buyers are waiting for," Williamson said.
'No strong rebound in sight': Mortgage rates may not rise in response to the latest data, but they aren't likely "to move much in the coming weeks" either, according to Bright MLS Chief Economist Lisa Sturtevant.
The market has shown "some buyer-friendly momentum," Krimmel said, pointing to year-over-year increases in contract signings and lower asking prices, but "the headwinds — elevated rates, inflation, and uncertainty — are substantial."
Weakening inventory suggests that would-be sellers are reacting negatively to elevated rates, and consumer confidence is at an all-time low, Sturtevant noted — signs that "we should expect the housing market to continue to plod along, with no strong rebound in sight, into the summer."
The upside? More jobs should improve buyer confidence, leading to more housing market activity — but a strong labor market can also "make near-term mortgage-rate relief harder to come by," Williamson said. "The upside is that even a modest move lower in mortgage rates, paired with greater confidence in job security, could give some buyers the push they need to re-enter the market in the second half of the year."
Wages aren't keeping up: Confidence can only go so far, however, if consumers can't afford to buy. The jobs data is less important than "the race between earnings growth and inflation," Krimmel said — and right now, inflation is winning.
Wages were up 3.4% in May, while the Consumer Price Index rose to 3.8% in April and is expected to be even higher when the May data is released next week, Krimmel noted.