Last week’s inflation data showed a further slowing in the pace of inflation, which is good news for the growth and health of the economy. Since we’re discussing inflation, I thought I’d take this opportunity to remind you of the relationship between inflation and mortgage rates. In general, higher inflation also means the price of money is more expensive and that’s what mortgage borrowers have seen over the past year as inflation has gone up, so have mortgage rates.
Will mortgage rates come down as inflation rates improve? It’s possible but it’s impossible for us to know how much or when. Like last week, when we saw the Consumer Price Index come in at 3 percent year over year which represents the slowest rate of inflation since March of 2021.
As a result of the good news on inflation, bond prices dropped and mortgage rates improved. The 10-year Treasury Note yield – which mortgage rates often mimic – dropped from multi-month highs very quickly. Unfortunately on Friday markets corrected and rates ticked back higher.
Some analysts believe we could still see some higher inflation readings, which again could affect mortgage rates causing them to tick higher. However, as the overall trend of inflation moves lower we could see the longer-term trend for mortgage rates move lower as well.
Keep in mind that this doesn’t mean waiting to buy is the best option. We always have the option to consider a refinance when rates improve.
As for what I’m watching this week…
We have quite a few housing market reports to watch including the Housing Market Index, New Housing Starts and Building Permits, and the latest numbers for Existing Home Sales numbers.
Before we get to the housing market, Retail Sales numbers are due out. June sales are expected to rise 0.5 percent versus May’s modest 0.3 percent rise in a report, despite the soft headline that mostly showed broad and welcome strength.
The housing market index, which measures the sentiment of the nation’s home builders, is expected to continue its recovery but only by 1 point, to 56 in July after rising 5 points in June to a much better-than-expected 55.
As we know, Housing Starts and Permits are a leading indicator of the health of the housing market. After surging by more than 20 percent in May to 1.63 million, housing starts in June are expected to fall back to a 1.48 million annualized rate that would, nevertheless, be far above April’s 1.34 million rate. Permits, which jumped by more than 5 percent in May to 1.49 million, are expected to hold steady at 1.49 million.
And finally, for Existing Home Sales, after May’s 4.30 million annualized rate, existing home sales in June are expected to slip to a 4.23 million rate. The National Association of Realtors has described recent sales as stable within a fast-moving market.
Have a great rest of your week!
