Mortgage Rates Fall To 2025 Low

Last week we saw mortgage rates have a nice dip after some weaker than expected labor data and some better than expected inflation data. It's certainly a nice way to end the year and tees up what many expect to be an active 2026 in the housing market after a 3 year lull thanks in large part to higher rates.

Labor Market Weakness Continues

The U.S. Jobs Report released last week showed the U.S. lost 105,000 jobs in October and added only 64,000 in November, with the unemployment rate rising to 4.6%, the highest level since 2021. Revisions to prior months confirmed that labor conditions had been weakening earlier and more broadly than previously reported. which the Fed anticipated according to Powell's press conference the week prior.

The Federal Reserve has consistently signaled that some labor market softening is expected. However, the depth and timing of this slowdown appeared to catch markets off guard. What had been viewed as a gradual cooling now looks closer to a meaningful loss of momentum, prompting investors to reassess how long the Fed can afford to remain on hold before continuing to cut.

With markets recalibrating expectations, Treasury yields moved lower and mortgage rates followed. If additional labor weakness shows up in the January and February reports, rate markets may continue to price in earlier policy easing, keeping downward pressure on mortgage rates even before any formal shift from the Fed.

Positive Inflation Data

2 days after the Jobs Report, November CPI came in cooler than expected, with headline inflation rising 2.7% year over year and core CPI slowing to 2.6%, the lowest core reading since early 2021. Monthly price gains were also softer than forecasts, and several categories including lodging, recreation, and apparel showed outright declines. Shelter inflation continued to ease, an important development given its heavy weighting in the index. While the data was delayed and partially distorted by the government shutdown, it reinforced the broader trend of slowing price pressures. 

The Federal Reserve has been signaling for months that inflation progress would allow it to shift focus toward supporting the labor market. However, markets appeared to view this report as more meaningful than policymakers may have intended. Combined with recent labor data showing faster-than-expected softening, investors began to reassess how long the Fed can afford to remain on hold, even if officials remain cautious about noisy data.

Again, treasury yields fell across the curve, equities rallied, and rate markets increased pricing for earlier policy easing. Mortgage rates followed yields lowe

What to expect for the rest of the year?

Not much! The year seems to be winding down. With Christmas this week and New Years next, there likely won't be much noteworthy news to be announced.

Still, we'll see a GDP report on Tuesday and some housing market data next week that could be insightful. 

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