CHM Blog

Execution counts, but no market rebound quite yet

There's good news on the inflation front — but before anyone is thinking of Olympic-grade medals, economists are urging a little patience, reports Realtor’s Jake Krimmel.

January's Consumer Price Index came in at 2.4% year over year, with core inflation at 2.5%. Like a figure skater who just twirled 12 feet above the ice, there was a sigh of relief when both numbers landed right where they were expected to — just a hair lighter than forecasted. Headline inflation eased from 2.6% the previous month, and core dropped from 2.7%. Core CPI is now at its lowest point since March 2021, when this whole inflation saga was just getting started. It was, by most accounts, a solid report — but analysts, including Krimmel, are quick to note that January is notoriously tricky due to seasonal quirks, and one month doesn't make a trend. Landing those jumps have to become muscle memory.

It feels good to say this is all encouraging, inflation still isn't low enough for policymakers to declare perfect scores just yet. For the Federal Reserve, this report reinforces what most economists already suspected: expect a pause at the March FOMC meeting. Along with the good comes another supposed good that translates into bad juju for mortgage rates: A recent jobs report showing solid payroll growth and a stable unemployment rate was a setback for anyone hoping for an immediate rate cut.

Since last fall, risks on both sides of the Fed's dual mandate have eased — inflation is moving lower, and the labor market is no longer clearly deteriorating. Still, Fed Chair Jerome Powell has been vocal about staying vigilant on price stability in the final stretch of his tenure. Inflation isn't high enough to force action, but in his view, it's not quite low enough to fully pivot toward supporting the labor market, either.

Markets are currently pricing in two rate cuts this year, with last week's softer CPI helping to keep that scenario alive. But with more inflation and jobs data still coming before March, the Fed is expected to stay patient and firmly data-dependent.

For housing, Krimmel uses the term “cautiously optimistic.” Easing inflation combined with rising wages should boost purchasing power. With mortgage rates holding steady for several weeks now, the conditions for better housing affordability heading into spring are slowly clicking into place.

But here's the catch: nearly five years of elevated prices have taken a real toll. Income gains have been partly eroded, and consumer confidence is still healing. January's existing-home sales report showed activity remaining soft, likely due in part to winter weather. Analysts will be watching new listing growth and pending sales for a clearer signal on where demand is actually headed.

While the foundation for a housing rebound may be quietly and cautiously forming, rebuilding consumer confidence and making a meaningful dent in affordability will take more than one good CPI report. It will require a sustained stretch of lower inflation and a labor market that feels less like a question mark.

Seems that victory lap will just have to wait.

Realtor, TBWS

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I'm among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are under a little pressure today. The MBS market improved by +14 bps last week. This was not enough to decrease mortgage rates or fees. The market experienced high volatility last week.

This Week's Rate Forecast: Neutral

Here are the three things that have the greatest ability to impact rates this week, 1) Inflation, 2) The Fed and 3) Geopolitical

1) Inflation: We will get the Fed's official key measure of inflation, Core PCE on Friday. Estimates call for the YOY Core reading to rise from 2.8% to 3.0%.

2) The Fed: We will get the Minutes from the last FOMC Meeting on Wednesday and we will hear from plenty of feds all week.

3) Geopolitical: The bond market is reflecting a higher potential for escalation with US/Iran. We also may get a decision out of the Supreme Court by Friday on Tariffs.

This Week's Potential Volatility: High

This morning markets have started out under pressure. Volatility has started low but could escalate to high depending on any surprises with PCE or geopolitical movements.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.