Here's the fastest path to lower mortgage rates

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If so, you’re invited to participate in the Q4 LendingOne-ResiClub SFR Investor Survey.

The survey results will be published later this month in ResiClub—and in other mainstream media publications.

Back in late summer, the U.S. unemployment rate jumped to 4.3% in the July reading published in August—up from the cycle low of 3.4% in April 2023. That labor market softening, which was enough to trigger recession indicators like the Sahm Rule, unsettled financial markets. In response, markets lowered their economic outlooks, briefly putting downward pressure on long-term yields and rates. As a result, the average 30-year fixed mortgage rate, as tracked by Mortgage News Daily, hit a 16-month low of 6.11% on September 11th.

However, those economic jitters soon faded as the unemployment rate for September and October slipped back to 4.1%. With fears of a potential break in the labor market subsiding, long-term yields and rates climbed again, pushing the average 30-year fixed mortgage rate to 6.93% as of today.

That raises the question: What if anything can get mortgage rates to come back down?

Based on ResiClub’s reporting, our view is that the key factor to watch moving forward remains the labor market. As we observed late this summer, a scenario in which the unemployment rate rises more than expected is also the scenario where mortgage rates are likely to decline the most.

Long-term yields, such as the 10-year Treasury yield, and mortgage rates are not directly set by the Fed’s short-term rate policy. Instead, long-term rates are heavily influenced by investor expectations about future economic conditions, including the labor market, economic growth, inflation, and Fed policy.

To get a sense of where long-term rates might be headed, keep an eye on the components of the Fed’s Dual Mandate Bullseye and how they are shifting.

As it stands today, the U.S. unemployment rate (4.1%) is within the Fed’s Dual Mandate Bullseye, while the inflation rate (2.6%) is just slightly outside the Fed’s Dual Mandate Bullseye.

Regionally, the unemployment rate remains below 5.0%—the traditional rule of thumb for full employment—in 46 states, with the exceptions being Nevada (5.7%), California (5.4%), Illinois (5.3%), and Kentucky (5.0%).

How does the Fed view the current economic picture?

“I view the economy as being in a good position. Inflation has substantially eased from its peak in mid-2022, though core inflation remains somewhat elevated. Unemployment remains historically low, but the labor market is no longer overheated. Economic growth has been robust this year, and I forecast the expansion will continue. Looking ahead, I remain confident that inflation is moving sustainably toward our 2.0% objective, even if the path is occasionally bumpy. Meanwhile, I see employment risks as weighted to the downside, but those risks appear to have diminished somewhat in recent months” Federal Reserve Governor Lisa Cook said while speaking at the University of Virginia last week.

Cook added that: “The broader trend I see is that national job growth is solid but perhaps not quite strong enough to keep unemployment at the current low rate. Net hiring so far this year is running somewhat below estimates for what economists call the breakeven pace, or the rate of hiring needed to keep the unemployment rate constant, when accounting for changes to the size of the labor force. With job growth coming in below the breakeven pace, which was likely more than 200,000 jobs a month over the past year, the unemployment rate has risen from a historical low of 3.4% in April 2023 to 4.1% in October.”

Final thought…

If the labor market were to weaken further and unemployment were to rise, it could exert downward pressure on mortgage rates. Regardless of additional weakening in the labor market, another way mortgage rates could decline is if volatility in financial markets eased and the spread—currently at 263 basis points (bps)—between the 10-year Treasury yield and the 30-year fixed mortgage rate narrowed toward the historic average of 175 bps. The average 30-year fixed mortgage rate, currently at 6.93%, would be 6.05% today if the spread fully compressed back to its historic average.

AI will disrupt residential real estate—here’s how

Earlier this month, ResiClub hosted the first-ever ResiDay, bringing together housing industry leaders and innovators to explore the future of real estate through expert panels, networking, and data-driven insights.

Among the top minds in attendance was Tomer Dorfan. Dorfan leads the go-to-market strategy for Endpoint, a digital title and settlement company aiming to simplify the home closing process. Dorfan joined Home.LLC’s CEO, Nik Shah in a panel discussion about how artificial intelligence (AI) is impacting the real estate industry—and why companies ignoring this shift might already be too late.

While some leaders foresee a future where AI acts as a replacement for a human, fulfilling complex roles and processes, Dorfan has a more tempered view of the technology for the housing sector.

“The companies that are doing it the best are thinking about how you pair the AI with the person to get the best outcome,” Dorfan told the ResiDay audience.

Here are three key predictions Dorfan made during the discussion:

1. AI will continue to transform service-based businesses like real estate: Dorfan says AI will significantly change the economics of traditionally service-based industries. While early iterations may fall short, once AI models are capable of replacing junior employees, companies leveraging this technology will have a clear advantage in efficiency and scalability. For service sectors like real estate, this shift will enable faster growth and streamlined operations, making it essential for firms to adopt AI to remain competitive.

2. There’s increasing feasibility of centralizing operations for service. providers Speaking from the perspective of a company in the single-family rental space, particularly for mid-to-large-size investors, Dorfan emphasizes that centralization is now more achievable without sacrificing service quality, particularly in property management, title, and closing, insurance, and appraisals. However, he warns that the real estate industry remains a local business, and national providers must maintain high standards to gain trust in specific regions.

3. There will be a shift from ‘point solutions to platform plays’: Dorfan anticipates that in the next five to seven years, AI solutions will shift from being focused on single tasks (point solutions) to being platforms that handle broader, more integrated processes. In real estate, this could mean AI working on interconnected tasks, such as coordinating multiple stages of a transaction, rather than just one isolated step. One way this could come about is the creation of systems where AI agents collaborate, speaking back and forth during various stages of a transaction versus just solving one aspect of the process.

Over the past week, ResiClub PRO members got these 3 additional research articles:

The biggest second-home hot spots, as told by one interactive map

Comprehensive home price analysis spanning over 800 metros and 3,000 counties

Chart: High-income job markets tend to have higher-priced housing markets

Here’s our other dual mandate tracker chart: