Cooler Inflation Data Sends Mortgage Rates Lower | Omaha NE Home Buyer’s Guide

December 14, 2022
Michael Petrovich
Uncategorized

Inflation data should look a lot different next Christmas

On Tuesday, the Consumer Price Index (CPI) data came in cooler than expected, and the bond market loved it, driving mortgage rates lower. Where do we go from here? Headline inflation is still very elevated historically, but the trend can be our friend over the next 12 months.

I say this because the most significant component of Core CPI is shelter inflation. The growth rate for rent is already cooling down in real-time data, but the shelter inflation data line of the CPI lags behind the current market reality. This means that what is happening in the present world isn’t showing up in the CPI, which is a big deal since 42.4% of this index is shelter inflation.

As I am writing this, the bond market’s reaction looks like this: the 10-year yield went lower in yields right after the report and is currently trading at 3.48%; this means mortgage rates are going lower today. As the growth rate of inflation fades more and more, the fear of 8%-10% mortgage rates, which was the fantasy of every American bear, is slowly slipping from their fingers because those mortgage rates would be very problematic for the housing market and the economy.

The housing market already went into recession in June of this year, and the second year of every recession is the excruciating part.

Also, the U.S. dollar is heading lower, which is a must because the dollar was getting too intense and creating a lot of havoc worldwide. Traditionally, when the dollar gets too strong, it can cause drama in the financial markets, as it did earlier in the year. The recent cooldown is necessary to create a more stable global market while everyone works on slowing inflation down.

Remember, it wasn’t long ago that the international institutions called for the Federal Reserve to stop its mortgage rate hikes as the dollar created a lot of damage in the markets.

We have had back-to-back reports of more excellent than anticipated inflation data. This is a start, and as I have said over the last few months, we will be in a much different spot 12 months from now.