Employment and inflation cooling alleviate pressure on the Federal Reserve to raise interest rates; U.S. mortgage rates have declined for the first time in six weeks.

U.S. mortgage rates have declined for the first time in six weeks. The latest employment and inflation data indicate that the U.S. labor market is cooling, while the impact of the Iran war on July inflation may be less severe than previously feared, resulting in a decrease in market expectations for recent interest rate hikes by the Federal Reserve. However, U.S. mortgage rates remain at their highest level in more than a year, with high borrowing costs continuing to suppress demand in the real estate market. Data released by Freddie Mac on Thursday showed that the average rate for a 30-year fixed mortgage in the U.S. slightly decreased from 6.69% the previous week to 6.67%, ending a streak of five consecutive weeks of increases. Despite the decline, current mortgage rates are still at more than a years high. Recently released inflation data has somewhat alleviated market concerns about the Iran war driving up U.S. prices. The inflation rate in the U.S. for July saw a year-over-year slowdown for the second month in a row, with prices for energy, gasoline, and groceries all declining from the previous month. Another measure of core inflationary pressure has dropped to the same five-year low as February of this year, indicating that the war currently has a relatively limited impact on overall inflation in the U.S. At the same time, the July employment report showed that U.S. hiring was weaker than previously reported, with a surprising decrease in employment numbers for the month. The simultaneous signals of cooling employment and inflation have lessened the pressure on the Federal Reserve to raise interest rates further in the coming months. According to the CME Group FedWatch tool, following the release of the July Consumer Price Index (CPI), market expectations for a 25 basis point rate hike at the Fed's September meeting dropped from 48% the previous day to 38%. However, Realtor.com's senior economist Joel Berner believes there may still be limited room for a significant further decline in mortgage rates in the future. On one hand, ongoing conflicts in the Middle East continue to exert upward pressure on inflation; on the other hand, the Federal Reserve remains highly focused on how to further reduce inflation. He anticipates that the current level of mortgage rates may become a more common state in the market over the next few months. The situation in the Middle East remains an important uncertainty affecting U.S. interest rates and inflation outlooks. Talks between Tehran and Washington over the Strait of Hormuz remain deadlocked, and international oil prices continue to stay elevated. The International Energy Agency (IEA) in its latest monthly report predicts that the global oil market will experience a supply gap of 1.8 million barrels per day this quarter, more than double the previous forecast. Brent crude is currently trading around $87 per barrel, having dipped below $80 earlier in August. Persistently high mortgage rates and economic uncertainty are further suppressing housing demand in the U.S. According to Redfin data, residential sales in the U.S. fell by 4.1% month-over-month in July, seasonally adjusted to the lowest level in nearly two years. Meanwhile, many U.S. homeowners locked in historically low mortgage rates during the pandemic are now reluctant to sell their current homes and take on higher financing costs, thus continuing to limit the supply of homes in the market. This "lock-in effect" has also kept U.S. home prices high, even amid weak demand. Data from the National Association of Realtors (NAR) indicates that the median sales price of existing homes reached $434,100 in July, up 2% year-over-year, and remaining near the previous record high. Redfin's Chief Economist Chen Zhao stated that many Americans are currently finding it difficult to afford housing costs, while other potential buyers are choosing to delay home purchases due to concerns about the economic outlook. Overall, the cooling of employment and inflation has ended the five-week consecutive rise in U.S. mortgage rates, but the 30-year fixed mortgage rate of 6.67% remains at a high level. Against the backdrop of conflicts in the Middle East, elevated oil prices, and uncertainties surrounding Federal Reserve policies, the room for mortgage rates to fall significantly in the short term may be limited, and the U.S. real estate market continues to face multiple pressures from high financing costs, elevated home prices, and insufficient supply.