Mortgage Rates Fell This Week On Exaggerated Recession Fears

Mortgage rates declined again this week on a softer-than-expected jobs report that heightened fears the US economy could be headed toward a recession. A flight to the safety of bonds led to a stock market selloff and a large decline in the Treasury yields that mortgage rates tend to follow. However, recession fears are overblown. Although the labor market is cooling, real Gross Domestic Product (GDP) growth — a combination of employment and productivity — continues to exceed expectations. While employment may be rising at a slower pace, productivity growth has risen. 

The recent increase in the unemployment rate can be attributed to temporary layoffs due to recent climate disasters such as hurricane Beryl, but also to an increase in the size of the labor force. As more individuals joined the workforce this year, some found work immediately while others searched for longer, thus adding to the pool of unemployed workers. But permanent layoffs remain low and the employment rate of prime working-age individuals remains near its highest level in 23 years.

Treasury yields and the mortgage rates that tend to follow them depend on forecasts for inflation and economic growth. Next week’s release of important inflation readings, the Consumer Price Index and the Producer Price Index, will likely cause investors to reassess their forecasts. That means more rate volatility ahead.