Mortgage rates have seen a decline for the third consecutive week due to concerns about businesses being hesitant to hire new employees.
In the week ending Oct. 16, the average rate on a 30-year fixed-rate mortgage dropped by 14 basis points to 6.11% APR, as reported by Zillow to BW. A basis point equals one one-hundredth of a percentage point.
Just three weeks ago, the average rate stood at 6.35%, almost a quarter of a percentage point higher than the current rate.
Factors influencing rate movement
Throughout this year, mortgage rates have been swayed by two opposing economic factors. Inflation has been pushing rates up, while a lack of robust job creation has been pulling rates down. These forces were at a standstill for the first seven months of the year.
However, the scenario shifted at the start of August. The slowdown in hiring has become a focal point for policymakers, resulting in the decline of mortgage rates.
Christopher Waller, a Federal Reserve governor, highlighted the weakness in the labor market in an interview on CNBC’s “Squawk Box” program on Oct. 10. He hinted at potential Fed rate cuts in response to the hiring slump.
Market sentiments are heavily influenced by the words of key figures like Waller and Fed Chair Jerome Powell, who expressed concerns about rising downside risks to employment in a speech on Oct. 14.
In response to job losses, the central bank reduces the overnight federal funds rate. Lower interest rates aim to stimulate hiring by encouraging borrowing among businesses and consumers. The Fed cut the federal funds rate in September and is anticipated to do so again in upcoming meetings.
Implications for buyers and refinancers
While the Fed doesn’t have direct control over mortgage rates, its policy decisions indirectly impact them. Expectations of further Fed rate cuts could lead to a downward trend in mortgage rates in the coming months.
According to Kara Ng, senior economist at Zillow Home Loans, softer economic momentum and a cooling labor market may contribute to a slight decrease in mortgage rates in the near future.
While affordability remains a challenge for home buyers, the current market conditions offer them more negotiating power as homes stay on the market for longer periods.
Lower rates also present an opportunity for refinancers, particularly those with interest rates above 7%. Considering a mortgage refinance could be beneficial if it results in a significant reduction in interest rates.