Inflation data deals ‘a double-blow’ to housing affordability 

While the arrival of new data indicating that inflation has climbed isn't a surprise, it shows that rising prices are dealing more blows to a spring homebuying season that was already off to a slow start.

Inflation jumps again: Overall inflation rose 3.8% in April compared to one year earlier, according to the U.S. Bureau of Labor Statistics' latest Consumer Price Index report. Inflation is now at the highest level in nearly three years, with the uptick in recent months — up 3.3% in March after hovering around 2.4% before the war in Iran started — mostly driven by high energy costs resulting from the international conflict.

Daily mortgage rates breach 6.5%: These jumps are leading to higher mortgage rates. The 30-year fixed-rate mortgage was estimated to be 6.52% on May 12, up from 6.42% at the end of last week, according to Mortgage News Daily (MND).

"Oil prices don't dictate rates, but there's currently a lot of correlation due to inflation implications," MND Chief Operating Officer Matthew Graham wrote in an online post. Oil impacts shipping costs, and so "a rapid spike in oil prices increases inflation," he noted, adding: "Rates are based on bonds, and bonds hate inflation."

Oil prices and war developments will be the main drivers of mortgage rate fluctuations in the near term, according to Chen Zhao, head of economics research at Redfin. If the geopolitical situation continues to deteriorate, the Federal Reserve may be more inclined to hike rather than cut short-term interest rates in an effort to combat inflation, Zhao wrote.

Wages aren't keeping pace: Another significant data point in the latest inflation report is that real earnings fell 0.5% from March to April. This means that wages are not keeping up with inflation, noted Realtor.com Senior Economist Jake Krimmel, and thus consumers are losing purchasing power.

"Beyond rates, today's real earnings decline represents a double-blow to housing affordability, which had been headed in the right direction earlier in the year," Krimmel said. "Consumers who feel squeezed at the gas pump and uncertain about the future of the economy tend to pull back from making housing decisions with confidence."

The uptick in energy prices is also beginning to spill into other areas. Clothing prices, for example, have jumped 4.2% year-over-year. After subtracting the more volatile energy and food prices, core inflation was up 2.8% compared to a year ago. 

What this means for homebuying: The housing market was already off to a slow start, with existing home sales flat in April compared to last year, when the market was similarly sluggish. While pending home sales have ticked up over the past couple weeks, it's unclear whether this is the beginning of a trend or just a blip.

Rising inflation doesn't completely eliminate affordability improvements made over the past year, according to First American Senior Economist Sam Williamson, but does dim the housing market's recovery. "Consumers may see better inventory and affordability than a year ago, but confidence and lower rates are still the missing ingredients," Williamson said.

Housing market activity this spring could be of the "K-shaped economy" variety, with stronger activity among equity-rich, higher-income households that are less sensitive to volatile mortgage rates and can take advantage of more inventory, according to Lisa Sturtevant, chief economist at Bright MLS.