Markets rallied at the close of November as Federal Reserve Chairman Jerome Powell indicated less aggressive rate hikes in the future. Powell reiterated there is still a good amount of work to be done to control inflation and any loosening of monetary policy in the near future is not going to happen. The Federal Open Market Committee meets December 13-14 and will decide the next rate hike which will more than likely be smaller than the 75-basis point hikes the FOMC has instituted in each of its last four meetings.

Markets surged on the news and rallied even further on Thursday morning with the release of the personal consumption expenditures index (PCE). The core PCE is a closely watched measure of inflation and showed a 0.2% month-over-month increase in October which was lower than expected. The core PCE reading excludes the more volatile readings for food and energy. The Commerce Department's report is another sign that inflation is cooling if ever so slightly.

The rally was short lived as investors were shocked by the much stronger than expected November jobs report from the Labor Department. The U.S. economy added 263,000 jobs in November despite the quantitative tightening measures implemented by the Fed. Economists had predicted an increase of 200,000. The unemployment rate was in line with expectations at 3.7%. This robust jobs report could factor negatively into the Fed's upcoming rate hike plans and calls into question whether the Fed will start to slow the pace or stick with another 75-basis point hike. 

The ADP Employment Report released earlier in the week did show signs of the labor market cooling. Private payrolls added 127,000 jobs in November—well below the estimate of 190,00 and significantly lower than the 239,000 jobs reported in October. This is the lowest total since January of 2021. 

Treasury note yields dipped significantly from previous highs with the 10-year Treasury note yield trading at 3.58% early Friday morning before the release of the jobs report. On November 2, the 10-year was above 4.1%. Any time there is a decrease in the 10-year yield you can expect mortgage rates to follow suit. 

The latest survey from Freddie Mac showed rates dropped slightly week-over-week with the 30-year fixed-rate mortgage average coming in at 6.49%. Freddie Mac analysts noted in their report that, "Mortgage rates continued to drop this week as optimism grows around the prospect that the Federal Reserve will slow its pace of rate hikes. Even as rates decrease and house prices soften, economic uncertainty continues to limit homebuyer demand as we enter the last month of the year."

Home prices have started gaining more traction in the headlines as slowing purchase demand is forcing sellers to scale back on asking price. Anecdotally, you can see this happening when you look at homes for sale on Zillow and other sites, but the data is just now starting to show real movement. The latest S&P CoreLogic Case Shiller National Home Price Index showed a third-straight month of home price deceleration. September's reading showed home prices rose by 10.6% year-over-year, a decrease from August's 12.9% pace of growth. 

The main sticking point underpinning home prices is the lack of inventory. Despite existing home sales falling for nine straight months, many current homeowners are reluctant to sell after refinancing to historically low rates below 3%. Furthermore, it is going to take some time for single-family new home construction to get up to speed. The Census Bureau's most recent report showed October's single-family starts and permits fell to their lowest level since May 2020. The National Association of Homebuilders' confidence index is down to its lowest level since 2012 after dropping for 11 straight months.