The Federal Reserve raised interest rates again at its last meeting, hiking the federal funds rate by 25-basis points. This is the eighth consecutive increase since March 2022 but was also the smallest increase. While that gave investors some hope that the Fed will continue to slow down its quantitative tightening (QT) measures, the Fed remains hawkish in its approach saying "ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time." Essentially, don't look for the Fed to lower the overnight lending rate any time soon.

Keep in mind that the federal funds rate does not directly affect mortgage rates. Any time the Fed adjusts this interest rate things like your credit card interest or the amount of interest you pay on your car loan are affected. 

One economic sticking point the Fed has been dealing with when deciding rate increases is the labor market. The January jobs report from the Labor Department showed non-farm payrolls added 517,000 jobs in January—that was far and away above the estimate of 187,000 jobs. The unemployment rate also fell to 3.4% down from 3.5% and wages increased by 4.4% annually.. Treasury yields rose on the news with the 10-year note jumping up by 6-basis points. Mortgage rates are closely tied to the yield on the 10-year note. 

The Labor Department's monthly Job Openings and Labor Turnover Survey (JOLTS) showed the labor market remains tight with 1.9 job openings for every unemployed person in December. The JOLTS report is an indicator of labor demand, meaning companies have openings for jobs they're actively looking to hire. In December, the JOLTS report showed job openings increased to a five-month high of 11.0 million. Economists had predicted about 10.25 million openings. It should be noted that leisure and hospitality accounted for 75% of the total increase which could indicate the rise was more seasonal in nature.

EXPECT DEMAND TO INCREASE AS RATES FALL AGAIN

The change may not be big each week, but once again mortgage rates are trending down. The latest Freddie Mac 30-year fixed-rate mortgage average came in at 6.09%. That's nearly 40 basis points lower than where rates were to start the year (6.48% on Jan 5). Freddie Mac's economists looked even further out, noting "Mortgage rates inched down again, with the 30-year fixed-rate down nearly a full point from November, when it peaked at just over seven percent. According to Freddie Mac research, this one percentage point reduction in rates can allow as many as three million more mortgage-ready consumers to qualify and afford a $400,000 loan, which is the median home price."

As rates continue to move down it's likely competition will once again start to pick up especially as we enter the historically strong spring buying season. The National Association of Realtors recently reported that pending home sales were up by 2.5% month-over-month in December—the first increase in pending home sales since May 2022. 

The end of January, however, showed an overall decline in mortgage applications according to the Mortgage Bankers Association. Both purchases and refinances were lower week-over-week. The MBA's Vice President and Deputy Chief Economist, Joel Kan, notes the economic factors positively affecting mortgages, saying "Treasury yields were higher on average last week, while mortgage rates decreased, which was a sign of a narrowing spread between the two. The spread between mortgage rates and the 10-year Treasury has been abnormally wide since early 2022. Further narrowing of that spread is expected to put downward pressure on mortgage rates in the coming months."