Why the latest inflation data is good news for real estate
Cooling inflation gives the housing market an “incremental tailwind.” But economists warn that data released this time of year can be tricky to interpret.
The latest inflation report is providing a bit of good news for the real estate industry heading into the spring homebuying season.
What the January inflation report said: Overall inflation rose 2.4% in January compared to one year earlier, according to a Feb. 13 report from the U.S. Bureau of Labor Statistics. That's down from 2.7% in December and slightly cooler than the 2.5% that was forecast.
Core inflation — which eliminates the more volatile food and energy items — was at 2.5%, in line with expectations. The shelter index — which focuses on rent — continued to cool, slowing to a 3% annual pace.
The latest data suggests that the tariffs introduced by the Trump administration last April may have caused a short-term economic shock rather than an ongoing one. While inflation did rise from 2.3% in April 2025 to 3% in September, it has steadily declined since then.
A boost for real estate? Cooler inflation, combined with the better-than-expected jobs report that was released earlier this week, is what the industry is looking for. Together, both factors could lead to a drop in mortgage rates at a time when more Americans may be looking for a home after landing a new job.
Following the inflation report's release, the 30-year fixed-rate mortgage dropped from 6.10% to 6.04%, according to Mortgage News Daily. Rates have hovered near three-year lows over the past several weeks.
"For housing, January's (inflation) report is another incremental tailwind heading into the spring," said Sam Williamson, senior economist at First American.
"As inflation cools and markets price a clearer path to easing, mortgage rates can drift modestly lower even before any policy move, providing a small affordability boost," Williamson added. "That would add to recent improvements from slower home price growth and rising incomes, helping bring some rate-sensitive demand back as the market enters the peak buying season."
The housing market is in need of a boost. Existing home sales dropped sharply in January, falling 4.4% year-over-year. Mortgage applications and pending sales were also off to a slow start as the new year began.
How the data could shape Fed decisions: Though the January jobs and inflation reports offer some hopeful signs, the Federal Reserve is expected to rely more heavily on February data before making any monetary policy adjustments. For now, the January data reinforces the central bank's earlier decision to hold off on cutting short-term interest rates, noted Jake Krimmel, senior economist at Realtor.com.
"The Fed is likely to remain patient and firmly data dependent," Krimmel said.
Data is 'encouraging,' but may not tell the whole story: Fears of stagflation — which occurs when unemployment and inflation are both rising — appear to be subsiding.
However, it's unclear whether the U.S. is moving toward more of a "Goldilocks" economy, where unemployment is low as inflation inches down, said Lisa Sturtevant, chief economist at Bright MLS. "It's probably a little too soon to call, and the economic data for February and March will be important signals," Sturtevant said.
Krimmel also noted that inflation reports at the start of a new year don't always reflect the wider economic picture.
"January is notoriously tricky because of seasonality, so it is important not to overreact to one month," Krimmel said. "While the broader direction remains encouraging, inflation is not low enough for policymakers to declare victory either."