Monthly RUNdown - September 23

Monthly Mortgage Rates RUNdown - here we go!

Over the last month, the average rate for a 30-year fixed mortgage has eased, dipping into the low-6% range briefly and now sitting between 6.3-6.4%. This is down ~0.25% from a month prior. The 15-year fixed mortgage followed the same trend, lowering into the 5.7% to 5.9% range. This downward movement has largely been a result of the below stories, so read on to see what's helping out the mortgage industry. 

The labor market was showing signs of cooling, and more recently started flashing signs of more than just cooling. The Bureau of Labor Statistics printed a disheartening number of jobs added in August, and revised previous months lower while they were at it. This is the same report that last month caused President Trump to fire the chief of the bureau over concerns of "rigged" data. As you can see from the chart below, May through August jobs numbers have been very suppressed compared to previous years. A softer labor market gives investors more confidence that inflationary pressures are easing, which in turn reduces pressure on long-term bond yields. Since mortgage rates follow those yields, the weaker jobs data has been a significant factor in pushing borrowing costs lower.

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At its September meeting, the Federal Reserve delivered its first rate cut of the year. While only 25 bps, the move fueled expectations that further cuts could follow if inflation continues to trend downward. The market now believes the Fed has more room to loosen financial borrowing rates, particularly given the cooling jobs market mentioned above, and expects 2 more cuts this year. Here's the tricky thing, if we don't get 2 more Fed rate cuts this year, mortgage rates will likely increase slightly by year end since that is already being priced in. The chart below shows the probabilities of rate cuts based on what the market is currently pricing in. We currently have a Fed Funds Rate of 400-425, so 375-400 would be one rate cut, and so forth. I personally align with the 77% probability and expect both an October and December rate cut. 

Mortgage applications skyrocketed last week, going up 30% week over week nationally. Sadly for current sellers, about 70% of these applications were for refinances. Homeowners have responded more quickly to the rate relief than buyers. Buyers are also showing renewed interest in adjustable-rate mortgages, which typically carry lower initial rates than 30-year fixed loans, but adjust 5 or 7 years after closing. I personally don't love them because I was taking finance classes during the great recession and was therefore taught everything wrong with ARMs, but I do see their place for a specific buyer. This shift in behavior suggests that while rates remain higher than the pre-pandemic era, buyers are ready to take on some extra risk for even small declines in interest rates to improve their monthly payments.

Looking ahead, the key drivers of mortgage rates will remain tied to the Fed, the bond market, and incoming economic data on jobs and inflation. If inflation continues to moderate and the labor market softens further, additional Fed rate cuts could push mortgage rates down to ~6%. However, if inflation proves sticky or economic data surprises on the upside, the Fed will likely move more cautiously, potentially causing rates to increase. We have another Fed Meeting on October 29th which will add more context to what we can expect in December and early 2026. Remember even if we get an October rate cut, mortgages rates are more closely tied to the data released and the language shared regarding upcoming cuts.