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Mortgage rates eased Friday as bond market investors who fund most home loans took stock of new data showing hiring slowed in February and that the unemployment rate ticked up to 4.1 percent.
Employers added 151,000 workers to their payrolls in February — only slightly below what economists expected. But the latest numbers from the Bureau of Labor Statistics represent “a snapshot of a prior age, before the shift in federal government policies undermined confidence,” Pantheon Macroeconomics Chief U.S. Economist Samuel Tombs said in a note to clients.
Samuel Tombs
“The hit to payrolls from layoffs of federal employees instigated by DOGE likely lies almost entirely ahead,” Tombs said of cuts the Department of Government Efficiency has instituted across government agencies.
Forecasters at Pantheon Macroeconomics expect federal government payrolls will shrink by 200,000 by October, and that private companies will also slash 100,000 jobs as a result.
Job growth slows
February’s job growth came in stronger than January’s numbers, which were revised down by 18,000 jobs to 125,000. Fields of work that saw the strongest gains, included health care, financial activities, transportation and warehousing, and social assistance.
But looking back a year, job growth has been trending down. Employers added 222,000 workers to their payrolls in February 2024, and have been creating an average of 168,000 new jobs a month over the past year.
Federal government employment declined by 10,000 from January to February, “a number that’s likely to increase in future months, given the announced plans for reductions in force,” Mortgage Bankers Association Chief Economist Mike Fratantoni said.
The silver lining for housing and homebuyers is that a “flight to safety” by investors into bonds and mortgage-backed securities that fund most home loans has been bringing mortgage rates down, First American Senior Economist Sam Williamson said.
Sam Williamson
“In February, the 10-year yield fell by over 40 basis points, likely due to weakening business and consumer confidence amid recent political turbulence in Washington,” Williamson said in a statement. “Further economic weakness could trigger a renewed flight to safety, driving the yield on 10-year Treasury notes even lower, which would pull mortgage rates down further ahead of the spring homebuying season, potentially enhancing housing affordability.”
Rates on 30-year fixed-rate mortgages were down 9 basis points Friday, according to data tracked by Mortgage News Daily.
Yields on 10-year Treasurys initially fell by as much as 7 basis points Friday morning after the release of the latest jobs numbers. But by the afternoon, they’d bounced back above Thursday’s close of 4.28 percent as Federal Reserve Chair Jerome Powell provided reassurances about the economy at an economic forum in Chicago.
Mortgage rates retreating from 2025 peaks
Since hitting a 2025 peak of 7.05 percent on Jan. 14, mortgage rates have been falling on souring consumer sentiment regarding the economy and increasing uncertainty over the impact of tariffs levied on imports by the Trump administration.
Worries that Congress will fail to avert a government shutdown as a March 14 debt ceiling deadline approaches also has many investors wanting to play it safe.
At 6.62 percent Thursday, rate lock data tracked by Optimal Blue showed rates for 30-year fixed-rate mortgages were down 43 basis points from their 2025 peak and more than a percentage point from a post-pandemic high of 7.83 percent registered in October 2023.
Requests to refinance jumped 37 percent last week as homeowners scrambled to take advantage of lower rates, and purchase loan requests were also up by a seasonally adjusted 9 percent week over week, the Mortgage Bankers Association reported.
While Friday’s jobs report initially prompted a stock market selloff, shares and long-term bond yields rebounded after Federal Reserve Chair Jerome Powell provided assurances that “the economy is fine” and that the central bank is in no hurry to cut rates.
“Many indicators show that the labor market is solid and broadly in balance,” Powell said of Friday’s jobs report. Speaking at a forum hosted by the University of Chicago Booth School of Business, Powell noted that employers have added a “solid” 191,000 jobs a month on average since September.
Powell acknowledged that recent surveys show consumers and businesses are increasingly uncertain about the economy, but said sentiment readings “have not been a good predictor of consumption growth in recent years. We continue to carefully monitor a variety of indicators of household and business spending.”
Williamson said that with the labor market holding steady, “a Fed rate cut in March remains unlikely, as policymakers stress the need for disinflation or labor market softening for further cuts, but a June cut remains on the table.”
Unemployment back over 4%
But in addition to the slowdown in hiring, the number of unemployed workers in February also increased by 203,000 to 7.05 million, bumping the unemployment rate up to 4.1 percent.
Mike Fratantoni
“Beyond these headline numbers, there was a marked increase in broader measures of unemployment,” MBA Chief Economist Mike Fratantoni noted.
The U-6 unemployment rate — which takes into account people who have part-time jobs but would like to be working full time — increased by half a percentage point.
“This trend suggests that the underlying job market is somewhat weaker than the headline numbers suggest,” Fratantoni said in a statement.
The MBA forecasts that the unemployment rate will to increase close to 4.5 percent by the end of the year, but that the Fed will hold rates steady through the second quarter before “cutting one more time this year as inflation moves slowly to target and the job market softens,” Fratantoni said.
Futures markets tracked by the CME FedWatch tool on Friday put the odds of at least one Fed rate cut by June at 79 percent. That’s down from 86 percent on Thursdsay, but up from 52 percent on Feb. 7.
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