Mortgage jobs, others inch up, as rate cut tensions grow

Mortgage bankers and brokers have been engaging in cautious hiring and they might want to remain careful about it given the complications the latest job numbers add to the rate outlook.

At 266,700, nondepositories in the industry added an estimated 1,300 positions during the May homebuying season when compared to revised April numbers as total U.S. jobs reported with less of a lag climbed too, adding a stronger-than-anticipated 147,000 positions in May. 

That, combined with a drop in unemployment to 4.1%, might not be enough to convince independent policymakers the economy is weak enough to lower short-term rates even though it's something housing regulator Bill Pulte and other Trump administration officials want.

"The housing market has been waiting for a Fed rate-cutting cycle to light the fuse on the 2025 homebuying season, but the labor market's surprising resilience has extinguished some of that optimism," First American Senior Economist Sam Williamson said in an emailed statement.

While there are some underlying signs of weakness in the job numbers, monetary policymakers who have a tendency to err on the side of caution will likely not consider them sufficient to take action, said Mike Fratantoni, chief economist at the Mortgage Bankers Association.

"While there are certainly some signs of softening in the private sector, the report is likely to keep the Federal Reserve on hold for now,"  he said in an emailed comment. He still forecasts two cuts this year.

Fed Chairman Jerome Powell has been concerned about cutting rates prematurely in a way that renews price inflation he's worked throughout his term to stave off. However, he said a reduction is possible, depending on what economic indicators show.

Several factors influence long-term mortgage rates that currently dominate the market beyond Fed policy, including the trading of bonds backed by the regulated entities Pulte oversees. But what beleaguered Chairman Powell and his colleagues control also can be a key driver.

Pulte has been escalating his battle against Powell over the question of whether the economy is weak enough to warrant Fed to make cuts in short-term rates given the market's mixed signals. 

Although there have been widespread federal layoffs, Fratantoni noted that other government entities have been filling in the gap, masking a notable drop in employment outside the public sector.

"Half of these job gains were in state and local government, leaving private sector job gains at 74,000," Fratantoni said. That number is "half their pace of recent months," he added.

Also earlier this week, a lagging May report on job openings registered a 400,000 increase to 7.8 million from a month earlier. This number has now risen for two months in a row.

The Job Opening and Labor Turnover survey also indicated that there's been "a slight weakening in hiring," according to a Barclays report. However, the Barclays commentary also noted that this occurred because "stronger quits offset a decline in layoffs and discharges."

"Potential homebuyers are likely to remain cautious unless, and until, the job markets begin to improve again, or mortgage rates drop sufficiently to spur more activity," Fratantoni said.

Mixed economic signals could help lenders if there is enough weakness to warrant a rate drop that spurs more interest in a sluggish market, so long as it doesn't go so far as to hurt housing sentiment and loan performance. Exacerbated inflation also could harm housing.

While mortgage lenders might welcome a rate cut under those circumstances, there have been times the intervention from President Trump has worried the capital markets and he's temporarily backed off. The markets are monitoring the situation to determine the outcome.

(Mortgage servicers have benefited from the current rate environment and could face challenges if a cut materializes.)

Monetary policymakers have traditionally been independent but President Trump is not the first to try to influence them, according to a recent Wall Street Journal article, which noted the Nixon and Johnson administrations also made attempts to exert pressure on the Fed.