What Bumper Jobs Report Means For Mortgages And Housing Market

Senior Housing Reporter

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Positive job growth last month is of little comfort for American homebuyers hoping for improved affordability in the U.S. market, as wage growth is slowing and their purchasing power declining, experts say.

The U.S. economy gained 172,000 jobs in May, according to the latest data by the Bureau of Labor Statistics—faring much better than the 85,000-110,000 expected by most analysts. The unemployment rate meanwhile held steady at 4.3 percent for the third straight month, matching expectations.

These figures show that the labor market “is beginning to stabilize, though some groups are still struggling,” Gbenga Ajilore, Chief Economist at the Center on Budget and Policy Priorities, said in a statement shared with Newsweek.

“Black unemployment continues to be elevated, the federal government continues to shed jobs, and those unemployed for more than 27 weeks aren’t finding jobs,” he added. “A key headwind is slowing wage growth, which is a concern given rising prices due to conflict in the Middle East and the ongoing tariff regime.”

Average hourly earnings rose 0.3 percent in May from the previous month, but slowed to 3.4 percent from 3.6 percent in April year-over-year. And earnings growth lagged the cost of living for a second month in a row, with the CPI up 0.6 percent from April and 3.8 percent from a year earlier.

What Does This Mean For the US Housing Market?

For American homebuyers, “four months of solid job growth is nothing to sneeze at, despite existential questions about how AI might reshape the labor market over the coming years,” Realtor.com Senior Economist Jake Krimmel said in a statement shared with Newsweek.

But the statistic that matters most for households and housing is not the headline jobs figure, according to Krimmel: it is “the race between earnings growth and inflation.”

With CPI expected around 4.2 percent when the data will be released next week, real wages remain negative “and are moving in the wrong direction,” Krimmel said.

“So far this spring, housing demand has stayed resilient, with annual gains in pending listings and contract signings. Sellers are reading the market better than last year, and asking prices have fallen for seven straight months,” he explained.

A recent report by Realtor.com found that median listing prices in the U.S. have been falling for seven consecutive months now, and in May they reported their biggest yearly drop since 2017, plunging 2.4 percent to $429,500.

Prices remain much higher than during the pre-pandemic era, however. Last month, the U.S. median listing price was up 34.2 percent from May 2019.

But experts believe that recent drops are a sign of sellers adjusting their expectations to the current sluggishness of the market, instead of holding onto the hope of fetching the same prices they would have during the pandemic boom.

Sadly, it is not enough to significantly shift the affordability needle for millions of Americans.

“Despite some buyer-friendly momentum, the headwinds—elevated rates, inflation, and uncertainty—are substantial,” Krimmel said. “For the housing market to keep treading water, we need the labor market to hold or, ideally, to show signs of a real summer pickup,” Krimmel said.

How Will the Jobs Report Influence Mortgage Rates?

For the Federal Reserve and the broader U.S. economy, “an improving labor market is good news in and of itself—but perhaps more importantly because it means one fewer fire to put out,” Krimmel said.

The better-than-expected data in the May jobs report is “a much-needed counterweight to the price instability and upside risk that has dominated the macro outlook since the Iran War began,” he added. “It lets the Fed focus squarely on inflation, which is where its attention belongs.”

With an improving labor outlook and the inflation picture deteriorating, the next move the Federal Reserve is likely to make is revising rates up rather than down, Krimmel said.

“In that environment, labor market movements are unlikely to be the main driver for changes in mortgage rates. The 10-year yield and mortgage rates will continue to be more sensitive to geopolitics, inflation expectations, and war-driven uncertainty than to job growth and unemployment statistics right now,” he explained.

According to an analysis by real estate brokerage Redfin, the latest jobs report “will lead to higher mortgage rates as it is strong enough to open the door for Fed officials to debate hikes at the next meeting.”

It does not mean, however, that a hike will happen within the next meeting; but it might change things in the longer term.

As of the week ending on June 4, the national average 30-year fixed-rate mortgage, the most popular among U.S. borrowers, was 6.48 percent, down from 6.53 percent the previous week and from 6.85 percent a year earlier.

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