Mortgage rate drop unlikely after strong June jobs report

Article originally posted on HERE on July 3, 2025

The U.S. economy added 147,000 jobs in June, curtailing hopes of another mortgage rate drop amid slowing homebuying and homeselling activity.

The Bureau of Labor Statistics’ report exceeded analyst expectations by 37,000 jobs, as unemployment rates dropped 3 percent month-over-month to 4.1 percent. The majority of job losses came from the federal government, due to the Trump Administration’s months-long mission to streamline multiple agencies and departments.

Bright MLS Chief Economist Lisa Sturtevant said the June report reflects the strength of the U.S. market despite a topsy-turvy trade and interest rate environment.

“There had been expectations that the June jobs report would indicate that businesses were holding back on hiring as a result of uncertainty around tariffs and elevated interest rates,” she said. “But there were strong gains in employment in the health care sector, while state and local governments also ramped up hiring in June. The June report included a 7,000 drop in Government employment, but again, this was far less than had been expected.”

“Signs of a cooling labor market in today’s BLS report could have provided the Federal Reserve the data it needs to cut interest rates when they meet at the end of July,” Sturtevant said. “However, with the employment numbers coming in strongly and with continued expectations that tariffs will lead to higher inflation, it is likely that the Fed is again going to hold off on rate cuts.”

“Mortgage rates had been edging down slightly this summer even without action by the Fed, but, so far, those lower rates have not been enough to drive higher home sales activity,” she added. “It is unlikely that we will see any significant drop in mortgage rates this summer.”

Krimmel said the housing market will remain in a “holding pattern,” as sticky mortgage rates prevent homebuyers from taking advantage of a boom in inventory rates.

“Realtor.com data show rising inventory for the 19th straight month, but sales are slowing. Homes are sitting on the market nearly a week longer than a year ago, and price cuts have reached record levels, indicating sellers are having a harder time finding a buyer — despite slightly lower mortgage rates in recent weeks,” he said. “High interest rates and the lingering lock-in effect are still keeping many would-be buyers and sellers on the sidelines.”

“The July 9 tariff decision could also reshape the inflation outlook and, combined with June’s above-expectation job growth, may keep the Fed cautious about cutting rates before September,” he added. “For housing demand to meaningfully rebound, affordability must improve — through both a more balanced market and wage growth that keeps up with living costs. A strong and stable labor market remains key to unlocking that path forward.”

Although a September rate cut is unlikely, Mortgage Bankers Association SVP and Chief Economist Mike Fratantoni said the Association still anticipates two short-term rate cuts before the end of 2025.

“… These data indicate a job market that is holding up reasonably well given the uncertainties facing this economy,” he said. “While there are certainly some signs of softening in the private sector, the report is likely to keep the Federal Reserve on hold for now. MBA is still forecasting two cuts from the Fed this year.”

“Potential homebuyers are likely to remain cautious unless, and until, the job market begins to improve again, or mortgage rates drop sufficiently to spur more activity,” he added