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Inflation cooling slightly, but mortgage rates climb back over 7% 

Inflation numbers were lower than expected in October, with housing prices representing half of the increase, while mortgage rates crept up.

November 10, 2022
3 minutes

Key points:

  • Although the month-over-month inflation increase was the smallest since January, bringing inflation to 7.7%, the Fed wants to see levels of around 2%.
  • The consumer price index for shelter accounted for half of the increase.
  • Mortgage rates topped 7% again, according to FreddieMac.

Inflation came in lower than expected in October — at 7.7% — according to U.S. Bureau of Labor Statistics, which released the numbers Thursday.

CPI is a measure of the consumer price index, tracking the cost of goods and services. The CPI went up by just .4% last month, representing the smallest year-over-year increase since January 2022, and down from September's 8.2% rate. 

The stock market rallied after the latest numbers were announced, as economists warned in September that they could come in higher. 

But economists still expressed concerns about the housing market in the latest report. The index for "shelter" accounted for half of the monthly increase, and was the largest monthly increase in that index since August 1990, according to the bureau report. Shelter includes rent, mortgages, lodging away from home and other housing-related expenses. Indices for gasoline and food also rose.

The housing market has been a bellwether for the economy with mortgage rates rising as the Fed has increased interest rates. Mortgage rates topped 7% again Thursday; for a standard 30-year fixed-rate mortgage, interest rates averaged 7.08%, up from 6.95% last week, FreddieMac reported.

"Higher mortgage rates have put the brakes on housing market activity, which was entirely the intent of the Federal Reserve. But the Fed's rate hikes were supposed to cool the economy more broadly, and so far, it seems like the housing market is the main sector impacted by the Fed's actions," said Bright MLS chief economist Dr. Lisa Sturtevant.

"The impact rates have on homebuyers continues to evolve" according to FreddieMac. Declining home sales are not expected to improve by the end of 2022.

The Fed has raised benchmark interest rates six times since March 2022 to lower inflation, with the goal of bringing down inflation to 2%. Higher interest rates have led to higher borrowing costs which have priced some home buyers out of the homebuying market.

The National Association of Realtors reported Thursday that monthly mortgage payments in the third quarter for a typical single-family home with a 20% down payment was up by 50% year over year. "Much lower buying capacity has slowed home price growth and the trend will continue until mortgage rates stop rising," said NAR Chief Economist Lawrence Yun in a prepared statement.

Cooling inflation numbers are likely to signal to the Federal Reserve that its rate increases are working, according to the Wall Street Journal, which reported that a rate increase of half of a percentage point is likely in December.

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