September Jobs Report Misses Badly: Could This Finally Help Mortgage Rates?

Mortgage rates finally got some good news.

The September jobs report came in substantially weaker than expected Friday morning, and the bond market responded almost immediately.

Only 29,000 jobs were added in September, compared with expectations around 90,000.

But the headline wasn't the only weak part of the report.

Previous employment estimates for July and August were revised lower by a combined 60,000 jobs. The unemployment rate increased from 4.1% to 4.2%, while annual wage growth slowed to approximately 3.0%.

After several extremely difficult weeks for mortgage rates, this was exactly the kind of economic report the bond market needed.

Why Jobs Affect Mortgage Rates

The Federal Reserve has been balancing two competing risks.

Inflation remains above its 2% target, which argues for keeping monetary policy

restrictive.

But raising rates too aggressively while the labor market is weakening risks putting

unnecessary pressure on the economy.

Until recently, the Fed could point to a relatively strong employment picture as

justification for remaining aggressive.

Today's report makes that argument more difficult.

Markets dramatically reduced expectations for another Fed rate hike in October

following the employment report.

That helped Treasury yields fall and mortgage-backed securities improve Friday

morning.

The Labor Market Isn't Collapsing

There is an important distinction here.

This wasn't uniformly terrible economic data.

The household employment survey showed employment increasing by 406,000 while

approximately 485,000 people entered the labor force.

The labor-force participation rate increased as well.

That's why I'd characterize the report as evidence that the labor market is cooling, not

collapsing.

And from a mortgage-rate perspective, that distinction could actually be constructive.

The ideal scenario for bonds isn't necessarily a recession.

It's an economy that cools enough to reduce inflation pressure without falling apart.

The 10-Year Treasury Finally Pulled Back

This comes after an extraordinary move in Treasury yields.

The 10-year Treasury recently climbed above 5% and reached levels not seen in

decades.

Yesterday it closed around 5.29%.

Following this morning's employment report, it fell back toward approximately 5.20%.

That's meaningful improvement.

But context matters.

We've experienced a major repricing in the bond market over the past month. One

weak employment report doesn't erase that.

Mortgage bonds also gave back some of their initial gains Friday morning.

So I'm not ready to declare that mortgage rates have peaked.

What About the Fed?

This may be the most important takeaway.

Before the latest run of softer economic data, markets were increasingly expecting the

Federal Reserve to continue raising rates.

That has changed quickly.

Following today's employment report, market expectations shifted much more heavily

toward the Fed holding rates steady at its October meeting.

That doesn't guarantee lower mortgage rates.

The Fed doesn't directly set 30-year mortgage rates.

Long-term Treasury yields, inflation expectations, government debt issuance, global

bond markets and mortgage-backed securities all matter.

But removing some of the fear of continued Fed tightening is certainly helpful.

What This Means for Homebuyers

This creates an interesting environment.

Mortgage rates remain high.

But those same rates have pushed some buyers to the sidelines.

That can mean:

• Less buyer competition

• More seller negotiation

• Price reductions

• Seller-paid closing

costs

• Temporary rate buydowns

• Opportunities that weren't available when competition was stronger

That's why I wouldn't make a housing decision based exclusively on trying to predict

mortgage rates.

Instead, I would ask:

Can we make the purchase work with today's payment and today's negotiating

environment?

If the answer is yes, you have control over the transaction.

If rates eventually improve enough to justify refinancing, we can evaluate that

opportunity later.

What I'm Watching Next

The next question is whether today's employment report becomes part of a larger

trend.

I'll be watching:

• Upcoming Federal Reserve minutes

• Weekly jobless claims

• Treasury auctions

• Inflation data

• Oil prices and geopolitical developments

• The October Fed meeting

For now, Friday's employment report is unquestionably welcome news for the bond

market.

But after the enormous increase in yields we've experienced, one good morning

doesn't make a new trend.

I'll continue watching the market daily and looking for opportunities when they appear.