The all important CPI (consumer price index) inflation came out this morning and mixed news; the year over year January CPI report fell to 6.4%, which was a hair lower than last month’s 6.5% – which is good, but higher than market expectations of 6.2% – which could have been better.
Reminder inflation is the arch enemy of bond prices, and therefore mortgage rates, and the reason we’ve seen mortgage rates improve since what appears to have been the peak in November is because inflation has been coming down. CPI peaked last summer at 9.1%, and has since been steadily decreasing. It was the November & December CPI reports coming in lower than market expectations that were the impetus for mortgage rates improving over the past few months, and then last months data at 6.5% came in right at expectations, so today’s report was much anticipated and bucked the prior three month trend and came in higher than expectations.
Looking at the numbers from a month over month perspective, which is arguably the most relevant in measuring present trend, the month over month figure was up 0.5%, which was up from 0.1% last month. Shelter (housing) is the biggest factor here increasing 0.7%, making up the majority of the month over month numbers. National housing costs are not coming down.
This month’s jobs & CPI reports are now behind us, the labor marker remains very strong, and inflation is moving lower, albeit slowly. Inflation creeping lower is good, but as expected we should not expect a straight-line drop in prices, and there will be slower and outright pauses in declines going forward.
As a result of this morning’s CPI report, bond yields/mortgage rates have ticked a hair higher. See chart below of the 10 yr T, which jumbo rates are based on, for a graphical context. As you can see, rates peaked first week in November, have since come down a bit, and now giving up a bit of ground.
Regarding conversations with clients; 30 yr fixes in the 6%’s with option of getting into the 5% with points, is a healthy “normal” place for them to be, and still well below historical long term averages. We’re still seeing jumbo rates notably lower than conforming (approx ~.625% .75%). Lastly, even after rates have improved, considering grossing up a sale price & requesting a seller credit can still be a good strategy to get buyers into not just a more palatable rate, but one that is really quite good and a loan they may hold for as long as they’re in the property.