Why a booming US job market is bad news for homebuyers

• Mortgage rates are unlikely to keep falling, says Mike Fratantoni of the Mortgage Bankers Association.
• A strong jobs market means the Fed is unlikely to ease monetary policy, keeping mortgage rates higher.

Red-hot strength in the labor market might calm recessionary fears, but it's not the greatest update for homebuyers awaiting lower mortgage rates.

"The strong job market is good news for the spring buying season as higher household incomes are a necessary component, but it also means that mortgage rates are not likely to drop much further at this point," Mortgage Bankers Association's Mike Fratantoni said on Friday, following January's blowout jobs report.

353,000 positions were created that month, well above the estimated 187,000. Meanwhile, wage growth jumped to an annual 4.5%, while unemployment remained low.

Such strength complicates the timing of monetary easing, as the Federal Reserve will want to see the economy slow before cutting interest rates. As mortgage levels loosely mirror monetary policy, a higher-for-longer regime can trigger a jump.

Already, Friday's report prompted the steepest rise in the average 30-year fixed rate in over a year. To start this week, the rate hit 7.04%, Mortgage News Daily reported.

Though the weekly average remains at 6.63%, it may not see lower levels in a while, potentially slowing home buying activity.

It's a turnaround from the last few months, as rates tumbled from October's 8% peak. Bets that Fed policy would pivot in 2024 spurred the decline, causing a steady rise in mortgage applications.

In that timeframe, homebuyers on a $3,000 monthly budget gained $40,000 as mortgage rates declined, real estate firm Redfin recently reported. But that hasn't translated to a spike in home selling, as a lack of inventory and sidelined home sellers have kept prices stubbornly high.