Damn you jobs!

Mortgage rates in the US jumped sharply over the last week and you can thank America’s stubbornly resilient labor market.

To briefly recapitulate, financing costs for grossly overpriced American homes fell for eight straight weeks from early August through late September. Indeed, the 30-year fixed on the MBA’s index only posted one WoW gain from July 3 to September 25, a stretch which, not coincidentally, encompassed a five-month US Treasury rally.

Most would-be homeowners and, I’d not-so-gently suggest, too many mortgage industry professionals, don’t fully appreciate the extent to which rates, by virtue of moving with 10-year Treasury yields, are forward-looking. It’s not necessarily the case that financing costs for homes will fall appreciably from current levels just because the Fed intends to keep cutting rates.

To be clear: It’s certainly possible that mortgage rates will fall further. And if I had to venture a guess, I’d say rates will probably be lower this time next year than they are today. The point is just that if you’re waiting on rates to fall to buy a home, and you’re hoping rates will drop as much again as they already have from the October 2023 peak, you may be left wanting. If you do get additional rate relief of that magnitude, you may not like the “why”: For long-end US Treasury yields to fall another 100bps to 150bps, you’d likely need a recession or some manner of crisis.

Anyway, last week’s bond selloff — brought to you by robust US macro data including an overshoot on ISM services and, of course, the September jobs report — naturally translated into a large increase in mortgage rates. The MBA’s gauge showed a 22bps jump, the largest in over a year.

“In the wake of stronger economic data last week, including the September jobs report, mortgage rates moved higher,” MBA SVP Mike Fratantoni remarked.

Refis fell 9% from the prior week but, tellingly, the gauge was up 159% from the same week a year ago. Recall that this time last year, rates were on their way to cycle highs amid an acute US long-end selloff and a concurrent repricing in the Treasury term premium.

Notably, the MBA’s Purchase Index fell only slightly from the prior week. “The largest constraint for many prospective homebuyers over the past year had been the lack of inventory,” Fratantoni went on. “Now, there are more homes available in many markets across the country, and with mortgage rates still low compared to recent history, at least some potential homebuyers are moving ahead.”

According to Redfin, pending home sales were flat YoY in the four-week rolling period ending September 29. It was, Dana Anderson noted, “the first time since January pending sales didn’t decline.” “Other demand indicators, like home tours and mortgage-rate locks, are also improving,” she said.

Just in time for rates to start rising again.