Mortgage rates hold steady as inflation hits 3-year high
While energy prices pushed overall inflation up to 4.2% in May, core inflation was lower than expected, possibly staving off a near-term rate hike by the Fed.
The latest inflation data released by the federal government appears to be in the "not as bad as feared" category for investors, which should keep 30-year mortgage rates in the 6.5% range for now.
Inflation hits 3-year high: The Consumer Price Index (CPI) in May was estimated to be 4.2% higher than a year ago, up from 3.8% in April, according to the U.S. Bureau of Labor Statistics.
While inflation has now reached the highest mark since April 2023, the June 10 report met forecaster expectations given the surge in energy prices attributed to the ongoing war in the Middle East. Before the war began in February, the CPI was at 2.4%.
The more encouraging news came in the core inflation data, which excludes the more volatile food and energy categories. Core inflation was up 2.9% year-over-year, below what forecasters anticipated.
The initial impact of the report's release on mortgage rates was subdued. Mortgage News Daily pegged the 30-year fixed-rate mortgage at 6.67% as of midday June 10, a tick down from one day earlier.
Latest data 'unlikely to change' Fed's path: The latest core inflation data suggests that inflation pressure remains contained for now, according to Odeta Kushi, deputy chief economist at First American.
"For the Federal Reserve, this report is unlikely to change the near-term policy outlook. Inflation remains higher than policymakers would like, and a resilient labor market gives the Fed little urgency to lower interest rates," Kushi said.
"The result is likely to reinforce the Fed's current wait-and-see approach and keep rate cuts on hold for now," Kushi added. "The softer-than-expected monthly core reading also reduces the likelihood that policymakers will need to consider rate hikes."
Realtor.com Senior Economist Jake Krimmel agreed, saying that the Fed may continue to hold rates steady through the summer. At the moment, markets are still pricing in a short-term interest rate hike for late 2026 or early 2027, he noted.
What rising inflation means for real estate: The resilient labor market is good news for household formation, income growth and consumer confidence — but persistent inflation is likely to delay mortgage rate relief, according to Kushi.
"The encouraging news," she said, "is that demand appears to be waiting on the sidelines, rather than disappearing altogether."
"If inventory levels continue to improve and affordability gradually recovers, stronger confidence in the labor market and broader economy could help bring some of that pent-up demand back into the market, even if meaningful mortgage-rate relief remains elusive," Kushi added.
Krimmel expects the overall inflation rate to remain a strong headwind over the summer. "Housing market activity has beaten the past two years and defied the low expectations that cropped up when the Iran conflict began," he said. "But there's only so long a housing market can outrun inflation."