Housing Market Stronger than Expected

Whether you call it “strong” or just “better than expected,” this week’s economic data outperformed market expectations—and as a result, interest rates edged higher.

Interest rates are closely tied to bond market behavior, which is heavily influenced by economic data. That said, the market doesn’t always stay focused on data releases. In early April, for instance, attention shifted to tariff-related developments, pushing economic reports to the back burner.

But as we mentioned two weeks ago, it seemed like economic fundamentals were regaining influence over rate movements. That was confirmed this week when the ISM Manufacturing PMI report had a noticeable impact. While the data wasn’t necessarily impressive, several components were stronger than anticipated. At the same time, inflationary pressures—reflected in elevated input prices—remained persistent, which is generally negative for interest rates.

In short, investors were looking for signs that trade uncertainty was starting to weaken the real economy, which could have justified lower rates. But when the data didn’t support that concern, markets adjusted upward.

Thursday saw only modest market movement, but things picked up on Friday after the release of the Employment Situation Report. Despite some downward revisions to previous months, job creation still beat expectations, and the unemployment rate held steady—even with more people entering the labor force. That’s generally a sign of labor market strength.

Together, the data from Thursday and Friday reversed the drop in expectations for a Fed rate cut that had built up over the past six trading days. The good news? This shift didn’t do much damage to the broader interest rate landscape. Ten-year Treasury yields—a key benchmark for longer-term rates like mortgages—are still in the lower half of their recent range. Mortgage rates are close to where they were last Thursday, although slightly higher compared to last Friday.

Some headlines may claim mortgage rates fell this week, but those are likely based on survey data from Freddie Mac or the MBA that doesn’t reflect the rate increases seen at the end of the week.