A better-than-expected May jobs report pushed equities and bond yields higher. An in-depth review of the data shows signs of slowing in certain areas of the economy, yet the report largely dismissed concerns of an imminent downturn. For mortgage markets, however, the report was not welcome news—odds of a Fed rate cut in June or July dropped sharply. While there is still hope for a September cut, the continued strength of both the U.S. economy and labor market reinforces the “higher for longer” thesis on interest rates.
Meanwhile, the "Big Beautiful Bill" is not being well received by bond traders, particularly on the long end of the curve. We’ve consistently expressed concern over the nation’s unchecked spending and structural deficits, both of which we believe are key drivers behind rising yields. Inflation appears temporarily subdued, despite upward risks from new tariffs and tighter immigration policies, and U.S. interest rates remain elevated relative to those of other developed countries. From our perspective, this indicates more than just inflation risk, it represents the market’s concern over America’s growing debt burden and lack of political resolve to address it.
In housing, the story remains the same: low inventory, high prices, and a cost of living that's straining affordability across income levels. What was once primarily a challenge for lower-income households is now affecting the middle and upper classes as well. That said, one bright spot is emerging; A-paper lenders are beginning to reprice more competitively, aided by the steepness of the yield curve. For top-tier borrowers, this could result in ARM rates dipping below 5% in the near term. Unfortunately, borrowers reliant on alternative loan products—typically structured as 30-year fixed loans—may not reap this benefit, as such rates remain stubbornly high.
All eyes now turn to next week’s CPI and PPI prints. For residential real estate to regain momentum, the market will need a catalyst—either lower prices or lower interest rates. Stay tuned and make sure you're subscribed to Insignia Mortgage's Market Commentary for the latest updates and rates.
