Quantitative Easing is Back!

QE Announcement Boosts Mortgage Rates 

Late Thursday, we received breaking news from the Trump announcing that the GSE’s, Fannie Mae and Freddie Mac, would start to purchase $200 billion in mortgage-backed securities (MBS’s). This is reminiscent of the process that the Federal Reserve (Fed) went through during the COVID-19 pandemic to artificially lower rates. This is known as Quantitative Easing (QE). Don’t expect 2% rates anytime soon (or ever). But the markets will look favorable and hit the best rates we have seen since September of 2024. Let’s see if the easing materializes and rates can hold this improvement.

Multiple Reports Support Lower Rates

This week, we saw several important employment related reports released. Job Openings and Labor Turnovers (JOLTS), ADP Employment, and the Bureau of Labor Statistics (BLS) Jobs Report were released. Apartment List released their National Rent Report.  Cotality reported home price changes and projections in their Home Price Insights report.  Institute for Supply Management (ISM) released their Manufacturing and Services reports. These economic reports overall supported better mortgage rates, but the announcement of the new QE pushed them to a new low. 

Apartment List Rents Continue Falling

Apartment List’s National Rent Report for December show that NEW rent prices fell 0.8%, continuing onto its fifth consecutive month of declines. Year-over-year, they have reportedly gone down 1.3%, which was lower than November and continues the 2.5 year decline we have seen. Vacancy rates hit a new all-time high at 7.3%. Average time on the market increased from 36 to 38.7 days. Remember, Rents and Owners’ Equivalent Rent make up a huge part of the CPI and PCE inflation reports. As the shelter costs decline, so does overall inflation, which is great news for mortgage rates.

Cotality Forecasts 2026 Price Growth

Cotality reported a nationwide decline in home values of 0.1% in November and yearly increases slowing down from 1.1% to 1.0%. The report projected flat values in December but expect a 4.3% increase in 2026. It is mostly due to lowering rates, increasing demand, and driving up prices. It would be a good time to remind buyers to get into a home before the expected price increases.

ISM Manufacturing Signals Economic Contraction

ISM’s Manufacturing Report was really poor, giving a nice boost to mortgage rates. The index came in at 47.9%, worse than market estimates of 48.4% and the lowest reading of 2025. A reading lower than 50 indicates contraction whereas if it reads above 50, it is an expansion. Only two sectors expanded while 15 contracted. Only 11% of industries are in expansion, the smallest since 2009 and the great recession.

On the flip side, ISM Services index rose from 52.6 to 54.4 when existing expectations were 52.3. ISM said the holiday season boosted activity and could have accounted for new orders and employment. Markets will be watching carefully for the next report to see if the positive trend continues.

JOLTS Shows Hiring Weakness 

The BLS JOLTS report was bad. It showed November job openings at 7.15 million, lower than the estimated 7.6 million. They also revised October down from 7.67 million to 7.45 million. This is the lowest amount of job openings since the end of 2020. The hiring rate fell from 3.4% to 3.2%, the lowest level it has reached since 2011 excluding the COVID-19 Pandemic. Remember, job openings are highly overstated in the post-COVID era. You can post the same job opening in numerous markets and it is only one real job that gets counted as multiple jobs. The Federal Reserve has acknowledged this and factors in an overstatement discount.

ADP and BLS Show Job Showdown

ADP’s Employment Report for December was less than expected coming in at 41,000 jobs created. On Friday, we saw a very important BLS Jobs Report for December. The headline showed 50,000 jobs created.True to form, they revised their previous two months down by a combined 76,000 fewer jobs. All job gains came from health care and leisure/hospitality. You would expect leisure/hospitality to have a boost with the holidays.  Health care isn’t very dependent on the economy. People get sick in recessions and economic booms. 

Household Survey Raises Questions 

The Household Survey was a bit surprising as it showed a decline in the unemployment rate from 4.5% to 4.4%. Digging a little deeper, we have found inconsistencies. It showed 232,000 jobs created in December when there have only been 57,000 jobs created over the past 11 months. The report showed that the labor force decreased by 46,000. The number of jobs created combined with the labor force decline cause the rate to lower. This report would have had mixed results for rates but thankfully, the QE announcement overshadowed everything else.

Barry Habib Shares 2026 Outlook

A market analyst that is respected by this blog is Barry Habib. Barry has won several Crystal Ball awards for being the most accurate predicter of future market results. He announced his 2026 projections this week. While his projections may be wrong, it is interesting to see what he thinks. 

Here are a couple of his thoughts for 2026:

• Inflation on Core PCE will end at 2.5%
• Mortgage Rates for 30-year Fixed will be at 5.7%
• 10-year US Treasury yield will be at 3.80%

Looking Ahead: Upcoming Inflation and Market Data

Next week, we will see some important inflation reports:

Monday, January 12: 10-year Treasury Auction

Tuesday, January 13: Consumer Price Index (CPI), New Home Sales, 30-year Auction

Wednesday, January 14: Producer Price Index (PPI), Retail Sales, Existing Home Sales

Thursday, January 15: Initial and Continuing Jobless Claims

Friday, January 16: Industrial Production and Capacity Utilization