The Real Impact of Unemployment on Mortgage Rates in 2024
webadmin • February 12, 2024
If you're waiting for mortgage rates to come down, you want to be paying attention to what is happening with inflation and the economy. Unfortunately, figuring out where the economy is heading in 2024 is not an easy task.
We've been saying for a while that mortgage rates will start making meaningful progress lower once we enter a recession, but the economy has been surprisingly resilient even in the wake of the most aggressive interest rate hikes in history. As it stands at the start of 2024, the U.S. is still not currently in a recession, according to the traditional definition (a significant decline in economic activity that is spread across the economy and lasts more than a few months).
The job market remains one of the U.S. economy's main engines, with the nation's unemployment rate near a 50-year low and wages finally pulling ahead of inflation. At the same time, major companies in technology, finance, media and other key sectors have all recently announced sizable job cuts, with layoffs nationwide more than doubling in January from a month earlier.
This positive jobs report and continued delay of an economic downturn has given even more credence to those who believe the Federal Reserve will be able to achieve a "soft landing" for the economy - raising interest rates just enough to slow the economy and reduce inflation without causing a recession.
But is the U.S. labor market really as "healthy" as the headlines say? Let's find out.
The BLS reported that there were 353,000 jobs created in January, which was nearly double expectations. Revisions to November and December also added 126,000 jobs in those months combined.
According to MBS Highway, while the headline job growth figure for January appears strong on the surface, future revisions lower are a very real possibility. January is always a heavily adjusted month, as new benchmarks, seasonal adjustments and population controls play a big role in calculating the data.
The Household Survey, where the Unemployment Rate comes from, is considered more real-time because it’s derived by calling households to see if they are employed. This survey has its own job creation component and it told a completely different story, showing 31,000 job losses.
Average weekly hours worked also declined to the lowest level since 2010 (excluding the pandemic). This is important because one of the ways businesses cut costs is to cut the number of hours worked. On average the entire labor force is working 30 minutes fewer per week, which equates to 2.4 million job losses on its own. What's more, ADP’s Employment Report showed that private payrolls began 2024 slower than expected, with employers adding just 107,000 new jobs in January.
We've been saying for a while that mortgage rates will start making meaningful progress lower once we enter a recession, but the economy has been surprisingly resilient even in the wake of the most aggressive interest rate hikes in history. As it stands at the start of 2024, the U.S. is still not currently in a recession, according to the traditional definition (a significant decline in economic activity that is spread across the economy and lasts more than a few months).
The job market remains one of the U.S. economy's main engines, with the nation's unemployment rate near a 50-year low and wages finally pulling ahead of inflation. At the same time, major companies in technology, finance, media and other key sectors have all recently announced sizable job cuts, with layoffs nationwide more than doubling in January from a month earlier.
This positive jobs report and continued delay of an economic downturn has given even more credence to those who believe the Federal Reserve will be able to achieve a "soft landing" for the economy - raising interest rates just enough to slow the economy and reduce inflation without causing a recession.
But is the U.S. labor market really as "healthy" as the headlines say? Let's find out.
January Jobs Reports Show Conflicting Numbers
In their analysis of the most recent labor data from The Bureau of Labor Statistics (BLS), MBS Highway notes that January's jobs report might not be the blockbuster that it appears to be on the surface.The BLS reported that there were 353,000 jobs created in January, which was nearly double expectations. Revisions to November and December also added 126,000 jobs in those months combined.
According to MBS Highway, while the headline job growth figure for January appears strong on the surface, future revisions lower are a very real possibility. January is always a heavily adjusted month, as new benchmarks, seasonal adjustments and population controls play a big role in calculating the data.
The Household Survey, where the Unemployment Rate comes from, is considered more real-time because it’s derived by calling households to see if they are employed. This survey has its own job creation component and it told a completely different story, showing 31,000 job losses.
Average weekly hours worked also declined to the lowest level since 2010 (excluding the pandemic). This is important because one of the ways businesses cut costs is to cut the number of hours worked. On average the entire labor force is working 30 minutes fewer per week, which equates to 2.4 million job losses on its own. What's more, ADP’s Employment Report showed that private payrolls began 2024 slower than expected, with employers adding just 107,000 new jobs in January.
MBS Highway also notes that there was a surprising uptick in December's job openings.
The latest Job Openings and Labor Turnover Survey (JOLTS) showed that job openings were stronger than expected in December, rising from 8.925 million in November to 9.026 million. The hiring rate rose from 3.5% to 3.6% while the quit rate remained at 2.2%, suggesting there’s a lack of employers trying to entice workers with other offers.
There's also the unemployment claims. The latest weekly Initial Jobless Claims reached their highest level since November, as 224,000 people filed for unemployment benefits for the first time.
Continuing claims also surged higher, up 70,000 with 1.898 million people still receiving benefits after filing their initial claim. Both Initial and Continuing Jobless Claims have risen over the last two weeks to nearly three-month highs.
A slowing economy is deflationary, and mortgage rates always follow the direction of inflation: higher in inflationary markets and lower in deflationary markets.
Layoffs are a harbinger for slowing economy, and there has been an uptick in job cuts recently across technology and media. Alphabet, eBay, TikTok, and the Los Angeles Times have all recently announced layoffs. And just recently, Snap (the owner of Snapchat) announced it was cutting 10 percent of its workforce. UPS, Macy's, and Levi's also recently cut jobs.
We are seeing multiple indicators of layoffs, rising continued jobless claims, and a rising unemployment rate. The unemployment rate has risen from a low of 3.4% in April 2023 to 3.7% currently. Every time the unemployment rate has bottomed and moved higher, a recession has followed. Recessions are deflationary by definition and therefore bring lower mortgage rates and greater housing affordability with them.
The latest Job Openings and Labor Turnover Survey (JOLTS) showed that job openings were stronger than expected in December, rising from 8.925 million in November to 9.026 million. The hiring rate rose from 3.5% to 3.6% while the quit rate remained at 2.2%, suggesting there’s a lack of employers trying to entice workers with other offers.
There's also the unemployment claims. The latest weekly Initial Jobless Claims reached their highest level since November, as 224,000 people filed for unemployment benefits for the first time.
Continuing claims also surged higher, up 70,000 with 1.898 million people still receiving benefits after filing their initial claim. Both Initial and Continuing Jobless Claims have risen over the last two weeks to nearly three-month highs.
Why We Believe Mortgage Rates are Heading Lower
Inflation is declining, but further declines are dependent upon continued slowing in the labor market. The latest jobs numbers, while they might show some strength right now, hint at weakness that could encourage Fed policymakers to permanently halt any future rate hikes.A slowing economy is deflationary, and mortgage rates always follow the direction of inflation: higher in inflationary markets and lower in deflationary markets.
Layoffs are a harbinger for slowing economy, and there has been an uptick in job cuts recently across technology and media. Alphabet, eBay, TikTok, and the Los Angeles Times have all recently announced layoffs. And just recently, Snap (the owner of Snapchat) announced it was cutting 10 percent of its workforce. UPS, Macy's, and Levi's also recently cut jobs.
We are seeing multiple indicators of layoffs, rising continued jobless claims, and a rising unemployment rate. The unemployment rate has risen from a low of 3.4% in April 2023 to 3.7% currently. Every time the unemployment rate has bottomed and moved higher, a recession has followed. Recessions are deflationary by definition and therefore bring lower mortgage rates and greater housing affordability with them.
Looking back to 1970, we can see a pattern of lower mortgage rates during recessions. According to
realtor.com
, when mortgage rates push 7%, 20 million households are priced out of the market compared to when rates are at 3%. Essentially, this means that for every 1% drop in mortgage rates, 5 million more borrowers are able to afford a mortgage on a median priced home.
The Bottom Line
Mortgage rates will see some ups and downs for the next little while, but we anticipate them to continue a downward trajectory as more labor reports are released and the economy feels the effects of layoffs and unemployment claims.While an economic slowdown needs to happen to help taper inflation, it hasn’t always been a bad thing for the housing market. Typically, it has meant that the cost to finance a home has gone down, and that’s a good thing.
But remember, a slowing market does not mean a crashing one! Even though mortgage rates have increased, demand for homes is still very high. This has led to home prices reaching all-time highs in many areas of the country. Mortgage rates will drop when the economy slows down, which we expect to happen later this year or in the beginning of 2024. When that happens, even more people will want to buy a home. This will keep home prices rising, which means the sooner you buy a home, the sooner you will benefit and see your home equity grow.
Here at Luminate Home Loans, we’re always looking for ways to offer more value to our clients and partners. That’s why we’re thrilled to announce that we’re now a wholly owned subsidiary of Luminate Bank®—and soon, we’ll officially transition under the Luminate Bank® name.
For years, homebuyers have been hoping for a return to the ultra-low mortgage rates seen during the pandemic. But as we move through 2025, it’s becoming increasingly clear that today’s rates—hovering between 6% and 8%—aren’t going anywhere.
Luminate Bank® Welcomes Josh Eifert as Chief Financial Officer, Honoring Legacy of Dave Turk [Minneapolis, Minn.] – [2/4/2025] – Luminate Bank® is proud to announce the appointment of Josh Eifert as its new Chief Financial Officer, succeeding Dave Turk, who has played a pivotal role in shaping the company's strong financial foundation. Josh brings a wealth of experience and strategic vision to Luminate Bank, with 26 years in the banking industry. Most recently, Josh served as CFO at Tradition Capital Bank in Edina, Minnesota, where he led the financial strategy during its remarkable growth from $300 million to more than $2.5 billion in total assets. Before his tenure as CFO, Josh contributed to Tradition Capital Bank in other key financial roles. He began his career with Norwest and Wells Fargo Banks, gaining extensive expertise in financial and operational capacities. Luminate Bank's leadership transition reflects the company's thoughtful succession planning, ensuring its financial strategies remain robust and forward focused. Under the leadership of Dave Turk, Luminate Bank has built an exceptional financial infrastructure, delivering consistent results and creating a foundation that positions the company for continued success. Luminate Bank's CEO, Marc Campbell, shared his confidence in the appointment: "Josh not only brings exceptional financial acumen and strategic insight to Luminate Bank, but he also embodies the principles that define our organization: integrity, innovation, and a steadfast commitment to excellence," Luminate Bank's CEO, Marc Campbell, shared with confidence. "His leadership will ensure our financial strategies succeed and inspire confidence across all who depend on us." "I am honored to join Luminate Bank at such an exciting time. The company's remarkable history of financial excellence and its forward-thinking approach align perfectly with my values and vision," stated Josh Eifert. "I look forward to collaborating with the talented leadership team to build on this strong foundation and drive continued success for our customers, employees, and stakeholders." Josh graduated from the University of Minnesota with a degree in finance and completed the Graduate School of Banking at Colorado. CEO Marc Campbell expressed gratitude for retiring CFO Dave Turk's contributions, saying, "Dave has been instrumental in positioning Luminate as a financial leader. His dedication, insight, and stewardship will always be a part of our company's legacy." Josh Eifert will officially assume his role on February 18, 2025. About Luminate Bank® At Luminate Bank, We Open Doors—empowering individuals and families to achieve their financial dreams through personalized service and innovative digital solutions. As a nationwide bank headquartered in Minneapolis, Minnesota, we are committed to helping our clients meet their financial goals with a blend of modern technology, traditional values, and the trusted guidance of experienced professionals. Known for our exceptional commitment to customers, we take pride in delivering a seamless, supportive experience for every step of the journey. Our dedicated mortgage division has branches and a team of loan originators across the US, making expert home financing solutions accessible to communities nationwide. Luminate Bank is committed to safeguarding your money and accounts with FDIC insurance coverage up to applicable limits. Learn more about how we can open doors for you at www.luminate.bank , follow us on Instagram, LinkedIn, and Facebook, or call (952) 939-7200. For media inquiries, please contact: Debbie Schwake, CMO debbie.schwake@luminate.bank
Have a question or concern for our team?
We're ready to help!
COMPANY
Luminate Bank
NMLS# 1281698
