Higher rates, lower inflation: Mixed news creates uncertainty
Buyers are left wondering if they should wait for rates to fall again, as some economists expect, or act now “and worry about rates secondly.”
Key points:
- Inflation was 2.4% in September, the lowest level in nearly four years — but slightly higher than many expected.
- Mortgage rates surged in the past week, with the 30-year rate averaging 6.32%, according to Freddie Mac.
- There has been a recent uptick in demand, but it’s unclear whether that will continue after the latest jump in rates.
The September drop in mortgage rates appears to have been short-lived.
A strong jobs report, followed by today's mixed inflation numbers, suggests the economy still has some heat to it, leaving buyers wondering if they should wait for rates to dip again.
Mortgage rates surge: In the aftermath of last week's jobs report, mortgage rates made the biggest weekly jump in six months. The 30-year fixed-rate mortgage averaged 6.32% this week, up from 6.12%, according to Freddie Mac. For some perspective, rates are still well below where they were a year ago, when they averaged 7.57%.
Inflation dips: The Consumer Price Index increased 2.4% in September, putting it at the lowest level since February 2021, according to the U.S. Bureau of Labor Statistics. While easing inflation represents progress toward the Fed's 2% target, it fell slightly short of expectations, said Sam Williamson, senior economist at First American.
That could lower the chances of a rate cut next month, though a 25-point reduction remains a possibility, Williamson said.
And a lot could change between now and then. The Federal Reserve will be looking closely at future economic data as it considers whether to cut rates in November and December.
In another report that came out Oct. 10, jobless claims rose more than expected, putting some cold water on last week's hotter-than-expected jobs report.
Rates may still fall, but current volatility a 'wake-up call' for buyers
The expected steady decline in rates for the rest of 2024 may now be a bit bumpy, but they should still ease in the coming months, said Lisa Sturtevant, chief economist for Bright MLS.
"Other economic data provides evidence to suggest that rates will come down. Today's inflation report shows continued progress toward the Fed's 2% target, and indicates that another rate cut in early November is likely, which could lead to lower mortgage rates," Sturtevant said.
The fluctuations in rates, and the possibility of more economic surprises, puts buyers in a difficult situation — but waiting for rates to hit some magic number may not be a good strategy, said Melissa Cohn, regional vice president of William Raveis Mortgage.
"You have buyers who say they're waiting for rates to drop before they want to buy. Well, this is a wake-up call, saying that no, you better find a house you want to buy and then worry about rates secondly," Cohn said.
Buyers continue to show interest
Demand has risen in recent weeks, aligning with the Fed's September rate cut, according to the latest Redfin rolling four-week report. The company's Homebuyer Demand Index, which takes into account home tours and other services, sat near its highest level since May.
New listings rose 5.7% year-over-year, putting active listings up 18% compared to the same period in 2023. Inventory remains well below pre-pandemic levels, however.
Mortgage applications drop
With rates on the rise, mortgage applications slowed down, falling 5.1% compared to the week before, according to the Mortgage Bankers Association.
Much of the slowdown came in refinance applications, while purchase mortgage applications were down less than 1%. Purchase applications remained up 8% compared to a year ago, when 30-year mortgage rates were above 7%.