Mortgage interest rates are falling based on weekly job data

December 7, 2024

0 3 minutes read

Mortgage interest rates are falling based on weekly job data

Mortgage rates fell this week and are now far from the levels that were widely discussed after the election. With the latest jobs report for 2024, mortgage rates have fallen significantly today, and this week has been a positive story. We discussed this possibility in last week’s Housing Market Tracker: Will There Be a Santa Claus Rally in Mortgage Rates? Economic data has played an important role in the market, unlike speculative theories.

What has this jobs week revealed? It is in line with the trend we have observed: the labor market is weakening, but not collapsing. Moreover, the notable weaker factor was the main factor impacting 10-year yields this week ISM services sector report instead of the released employment data. Mortgage spreads also improved significantly on Friday, helping interest rates, so start spreading the news.

Let’s look at the labor data to understand where we are in the economic cycle.

Jobs Friday

By BLS: Total nonfarm employment rose by 227,000 in November, and the unemployment rate was little changed at 4.2 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in healthcare, leisure and catering, government and social security. The retail industry lost jobs.

This report is likely noisy due to the recent hurricane and strike related issues. However, this has been a persistent trend over the past fourteen months. The labor market is weakening, but not breaking. Meanwhile, wage growth remains higher than expected Federal Reserve desires. The Fed would prefer to see wage growth around 3%, but currently it is at 4%.

From BLS: In November, the average hourly wage for all employees on private nonfarm payrolls rose 13 cents, or 0.4 percent, to $35.61. Over the past twelve months, the average hourly wage has increased by 4.0 percent.

Given that the labor market employed more than 157 million people in total nonfarm wage employment as of December 2023, I expected the monthly job creation numbers to be more in line with my expected range of 140,000 to 165,000 jobs per month. This seemed reasonable to me, as we were heading towards 159 million working people. However, this only happened after we got the recent negative revisions to the data. Let’s take a look at the updated numbers.

Average over 3 months: 172,666
Average over six months: 143,000
Average over 12 months: 189,500
The total average of all three is 168,000.

We’re slightly higher than I expected at this point, and that includes all the negative revisions. Add 4% wage growth to this story, and the labor market is not breaking but softening from the levels we saw in 2023. If you look at the unemployment rate, you can see that the labor market is softening from the low level of 3.4%. in 2023 to 4.2% now.

Overall, the labor data for 2024 looks good in my opinion, except that wage growth will remain firmer than I thought by then, as I was looking more in the 3.4%-3.6% camp.

Job openings and unemployment claims

Job openings numbers rose slightly in this week’s report, but remained significantly lower than the peak seen during the COVID-19 recovery. I was among the first to predict that the number of vacancies would approach 10 million this cycle, and that estimate turned out to be conservative, as the number of vacancies peaked around 12 million.

Internal data on vacancies shows a weakening of the labor market, as the rate of layoffs and hiring have decreased. Hiring is down, but layoffs are not happening on a large scale; Recent unemployment benefits data indicate that layoffs remain low domestically.

Although the number of published unemployment claims has increased, it is still historically low at 224,000. Remember my line in the sand for a recession: unemployment claims must exceed 323,000 according to the four-week moving average. We are nowhere near that yet, as the four-week moving average is 218,500.

After the jobs report, 10-year yields fell only a few basis points; Mortgage rates fared much better today as mortgage spreads improved from two days ago, helping to drive mortgage rates lower. As I’ve discussed many times in our weekly tracker article, if mortgage spreads were anywhere near normal, mortgage rates would be close to 6%, and in today’s case we’d be below 6%. We have all seen for two years now that the housing market is functioning better now that mortgage interest rates have fallen by almost 6%.

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