The September jobs report gave the mortgage market something it hasn't had much of lately: downward pressure on Treasury yields.
U.S. employers added just 29,000 jobs in September, while the unemployment rate edged up to 4.2%, according to the Bureau of Labor Statistics. The payroll gain fell well short of economists' expectations and followed substantial downward revisions to the previous two months.
July's employment change was revised from a gain of 21,000 jobs to a loss of 10,000, while August was revised from 162,000 to 133,000. Combined, the two months produced 60,000 fewer jobs than previously reported.
Wage growth also cooled. Average hourly earnings increased 0.1% in September and 3% from a year earlier.
The softer report sent Treasury yields lower Friday morning and reduced market expectations for another Federal Reserve rate increase this month. The 10-year Treasury yield, a key benchmark for mortgage pricing, fell about 3 basis points to 5.205% following the report.
That comes immediately after another sharp increase in mortgage rates.
Freddie Mac's 30-year fixed-rate mortgage averaged 7.28% for the week ending Oct. 1, up from 7.03% a week earlier. The 15-year fixed increased to 6.60% from 6.42%.
As NMP reported this week, higher borrowing costs have been eating into some of the advantages buyers are gaining from increased inventory, seller price cuts, and greater negotiating leverage.
Friday's jobs report introduces a potential counterweight to that rate pressure. But it doesn't guarantee mortgage rates are headed lower.
National Association of Realtors Chief Economist Lawrence Yun also sees room for some relief after what he called the recent “brutal rises” in mortgage rates.
“Mortgage rates could see slight relief,” Yun said in commentary Friday, pointing to the softer labor market and some retreat in oil prices. He characterized the economy as neither approaching recession nor overheating.
Rate Relief Comes With A Catch
First American Senior Economist Sam Williamson said the softer employment picture could ease some of the economic pressures that have contributed to higher bond yields and mortgage rates.
“September’s softer hiring may offer home buyers some much-needed relief on mortgage rates, but that relief comes with a catch,” Williamson said. “Lower borrowing costs improve purchasing power, while slower hiring limits the confidence and life events that drive home sales.”
That tradeoff may be particularly important for a purchase market already struggling to convert improved housing supply into transactions.
A softer labor market can help bonds — and potentially mortgage rates — by reducing expectations for economic growth and inflation. But slower hiring also means fewer job changes, raises, and relocations, all of which can trigger a home purchase or sale.
Williamson characterized the current environment as a “low-hire, low-fire” labor market.
“A low-hire, low-fire labor market can support existing paychecks, but it produces fewer of the life events that typically generate home sales,” he said.
The headline payroll number also warrants some caution. BLS said both payroll employment and unemployment “changed little” in September, and Reuters reported that economists see seasonal-adjustment effects, including the timing of Labor Day, as one potential contributor to the weak September number.
What It Means At The Loan Desk
For originators, Friday's report is not a signal to tell borrowers that mortgage rates are about to fall.
The Federal Reserve does not directly set 30-year mortgage rates. Mortgage pricing responds more closely to longer-term Treasury yields, inflation expectations, and demand for mortgage-backed securities. NMP explained that distinction following the Fed's September rate increase, which directly increased prime-based borrowing costs while fixed mortgage rates continued to follow the bond market.
Friday's market reaction nevertheless gives originators another reason to keep an eye on borrowers who stepped back as rates moved above 7%.
A meaningful improvement in mortgage pricing could change the payment calculation for some buyers, particularly those who are already finding more seller flexibility. Builders have also been leaning heavily on incentives, price reductions, and rate buydowns to keep payment-sensitive buyers moving.
That makes updated numbers more useful than predictions.
An originator can rerun a borrower's payment when pricing changes, update an older preapproval and show how a lower rate would affect purchasing power without promising that Friday's Treasury move will translate into a sustained mortgage-rate decline.
And rates are only half of the equation.
A borrower who gains purchasing power from a lower mortgage rate may still hesitate if job security or income growth feels less certain. Conversely, borrowers with stable employment who were sidelined primarily by the recent rate increase could be worth revisiting if mortgage pricing improves.
“Lower mortgage rates could help buyers hold onto more of those affordability gains,” Williamson said. “That may be enough to keep a floor under housing activity, even if the weaker hiring backdrop leaves little room for a meaningful rebound.”
For originators, September's jobs report therefore creates an opening, not an all-clear: watch the rate sheet, rerun the numbers when they change, and be ready to reconnect with borrowers whose payment — rather than their desire to buy — put them on the sidelines.
