Mortgage rates may finally start to begin a steady lower trajectory nationally following encouraging news on inflation.
The Consumer Price Index (CPI), an inflation gauge measuring goods and services costs across the U.S. economy, declined 0.1% in June on a seasonally adjusted basis, after being unchanged in May, the U.S. Bureau of Labor Statistics reported on July 11. Over the last 12 months, the all items index increased 3% before seasonal adjustment.
It was the first monthly dip in more than four years, providing proof for the Federal Reserve to start lowering interest rates later this year.
The shelter index increased 0.2% in June. The index for rent rose 0.3% over the month, as did the index for owners’ equivalent rent; these were also the smallest increases in these indexes since August 2021.
President Joe Biden was heartened by the data.
“Today’s report shows that we are making significant progress fighting inflation,” he said in a statement. “Overall prices fell last month, after staying flat in May, and core inflation is the lowest in more than three years. Prices are falling for cars, appliances and airfares, and grocery prices have fallen since the beginning of the year. Wages are rising faster than prices, and we’ve created 15.7 million jobs.”
Realtor.com Chief Economist Danielle Hale had this to say.
“As a result of the 0.1% slip, annual inflation rose just 3%, the lowest reading since March 2021 (2.6%). Falling energy prices were an important driver of this result, but even shelter inflation dropped below its recent pace. This nudged annual core inflation down to 3.3% in June, and the 0.1% monthly uptick in core prices was the lowest since August 2021.
“Today’s inflation reading underscored Fed Chair Powell’s recent remarks that both the risks to the economy and the supply and demand of goods and services are coming into better balance. The decline in prices in June followed flat monthly prices observed in May. Combined with the more moderate June jobs report, this data should build Fed confidence that its target is in sight, and could pave the way for a signal in the July Fed statement that a rate cut is on the horizon. This should help improve interest rates, like mortgage rates, much sooner, especially if the data continue on this trend.
“Risks remain,” she continued. “Shelter inflation is on a disinflationary path, but rose by 5.2% from a year ago. A slower pace of new-home construction, which was observed in both the single-family and multifamily data in May, will not help, and the sizable housing supply deficit remains.
“This is a challenging environment for home shoppers. But although mortgage-rate relief has not come as quickly as hoped, today’s buyers have more for-sale options than they have had in the last few years.”
