Mortgage Rates v.s. Jobs Data – Our Report on Logan Mohtashami of Housing Wire’s Podcast

Find the original podcast episode, “Logan Mohtashami on why jobs data is so important for mortgage rates” here: HousingWire Daily Archives – HousingWire

The FA Take:

The relationship between the job market and mortgage rates is a critical factor in understanding housing demand trends. Mohtashami notes that despite a decline in inflation, mortgage rates remain high, largely driven by a robust labor market. Here’s how the dynamics unfold:

A strong labor market has kept mortgage rates elevated. Recent data shows jobless claims have declined by about 50,000 from October to December 2024. As expected, the 10-year Treasury jumped nearly 100 bps in that time frame, despite the Fed implementing multiple rate cuts throughout Q3 and Q4 of 2024.

Mohtashami touches on the relationship between mortgage rates and housing demand. Housing demand typically increases when mortgage rates approach 6%. However, for rates to fall below 5.75%, certain conditions must be met:

• The spread between the 10-year and 2-year yields needs to improve, avoiding inversion, with an optimal spread of 70-80 basis points.
• The 10-year yield should stabilize around 3.8%-4%.

In 2023, treasury yield spreads were a challenge, with poor spreads affecting mortgage rates. It took multiple negative jobs reports to bring the 10-year yield close to 3.80% in Q3 2024. For the yield to fall below 3.80%, more significant economic weakness is required.

Currently, spreads sit around 30 bps, and the 10-year sits at 4.60%. Thirty-year fixed mortgage rates currently sit at 6.90%.

Despite higher mortgage rates, purchase applications have risen over the past two years, indicating resilient demand. In the final weeks of 2024, housing demand was notably positive, with increased purchase application data suggesting that even with rising rates, the housing market remains active.

Mohtashami’s 2025 outlook reflects optimism about the market’s direction. He notes that existing housing sales were positive in the last 10 weeks, and purchase applications grew even with rising mortgage rates. Housing Wire projects 4.2 million in existing home sales, and that forecast could fall short if rates approach 6%. This bullish outlook is supported by several factors:

• A strong workforce and favorable demographics.
• Significant equity and flowing credit in the residential sector.
• The absence of underwater mortgages, indicating financial stability among homeowners.
• The sheer size of the workforce and demographic trends continue to support housing sales.

In conclusion, the interplay between a strong job market and mortgage rates is a critical driver of housing demand. Even in an environment of rising rates, the resilience of the labor market ensures continued activity in the housing market. Understanding these dynamics is essential for anticipating future trends in mortgage rates and housing demand.