CHM Blog

The twisted logic of today's housing economy

When good is bad and bad is good? Try that one on for size. Economic indicators can be among the most nonsensical-sounding bellwethers. Like the labor market's unexpected strength last month (good, right?), while those waiting for interest rates to drop would not be pleased. Still, says Real Estate News’ Dave Gallagher, it’s a positive sign for home sales in the longer term.

Gallagher reports employers added 147,000 jobs in June, blowing past expectations by nearly 40,000, according to the U.S. Bureau of Labor Statistics. Previous months’ numbers were also revised upward with the overall unemployment rate dropping to 4.1%.

He cites First American’s Sam Williamson, who says this probably means that the Federal Reserve will be less likely to cut interest rates in July, and it lessens the odds of a rate cut in September. And the Feds announced that if the labor market remains strong, the central bank will be less inclined to cut rates soon.

"The housing market has been waiting for a Fed rate-cutting cycle to light the fuse on the 2025 home-buying season, but the labor market's surprising resilience has extinguished some of that optimism for now," Williamson said. The paradox? A stronger job market generally increases consumer confidence and purchasing power.

Despite rate cuts remaining stagnant, mortgage rates continue to drift lower, with the 30-year rate now dropping five weeks in a row. While it’s now at its lowest level since April, however, it hasn't been enough to spark home sales. “Purchase applications were nearly flat this week — an indication that economic uncertainty continues to keep buyers on the sidelines,” says Mortgage Bankers Association's Joel Kan.

And then there are tariffs. With announcements, pauses, and delays, says Anthony Smith, a senior economist at Realtor.com, any renewed volatility in trade policy could significantly impact market conditions during the second half of the year. "For now, elevated borrowing costs are still limiting buyer activity, and homes are spending more time on the market, supporting the ongoing buildup of inventory and modestly shifting leverage back toward buyers."

Now that summer is nearly upon us and the spring buying season is beginning to appear in the rearview mirror, seasonality will start working against home sales in the short term, according to Bright MLS’ Lisa Sturtevant. "The kick-off to summer usually means a slowdown in home shopping as some individuals and families are busier with vacations and traveling," she said.

Translation? Inventory should continue to climb and begin to approach pre-pandemic levels nationally, with the South and West markets having already reached these levels. All this and more, since home price growth continues to slow. “In its latest monthly report released on July 1, Cotality estimated home prices increased 1.8% in May, the slowest year-over-over increase since the winter of 2012,” says Gallagher.

"With the annual growth rate now slower than the rate of inflation, real home prices are falling, which suggests improved affordability going forward," Cotality Chief Economist Selma Hepp wrote in the report.

RealEstateNews, TBWS

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I'm among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are under a little pressure today. The MBS market worsened by -14 bps last week. This was not enough to increase mortgage rates or fees. The market experienced high volatility last week.

This Week's Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) Geopolitical, 2) Inflation and 3) The Fed.

1) Geopolitical: The bond market is still handicapping the "Big Beautiful Bill" and trade/tariffs will drive markets this week. The latest is that Treasury Sec Bessent says that there are several trade announcements ahead and the White House is sending out letters to several countries today notifying them of their tariff rate.

2) Inflation: We will get CPI and PPI this week as well as Import/Export Prices.

3) The Fed: The Fed's July meeting is fast approaching and their "media blackout" period starts this Friday. The bond market will focus on their take on the Jobs data that just hit as well as this week's round of inflation data. We also get the Fed's Beige Book on Wednesday.

This Week's Potential Volatility: High

This morning markets are seeing some mild pressure. Volatility has started at low to moderate levels but will increase later this week.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.