What This Morning's Inflation Data Means for You

Blog posted On December 13, 2022

Things are looking up for home buyers. Though the holidays aren’t for another week, the Bureau of Labor Statistics (BLS) dropped off an early gift this morning. The gift came in the form of the consumer price index – a popular inflation-measuring method – which showed that November’s inflation levels were cooler than expected. Mortgage-backed securities jumped for joy, traders breathed a sigh of relief, and anyone concerned with mortgage rates should be drinking a nice cup of holiday cheer.  

THE BACKGROUND  

First, let’s remember this:  

High inflation = Bad for mortgage-backed securities  

Bad for mortgage-backed securities = Higher mortgage rates (generally) 

So ↑ inflation = ↑ rates (generally) 

What further solidifies the high inflation → higher rates cause/effect is the Federal Reserve. The Federal Reserve has been at war with inflation since the spring. Their main weapon is the federal funds rate, or benchmark interest rate.  

↑ fed funds rate = ↓ inflation 

Unfortunately, this doesn’t always take effect immediately. The Fed started raising the benchmark interest rate in March and annual inflation kept creeping up until July but didn’t start showing true cooling until October’s numbers came out.  

The effect? Mortgage rates trended higher and higher until October’s consumer price index came out last month at lower-than-expected levels.  

TODAY’S GOOD NEWS 

Last month’s consumer price index came in below expectations, which was a pleasant surprise for the bond market and mortgage-backed securities, causing mortgage rates to see their largest one-day drop in decades.  

This is why today’s report was so important. It could either solidify the cooling into a trend, or it could prove last month’s data was a one-off. Luckily enough, the numbers came through and once again showed cooling inflation. Not only cooling inflation, but cooling inflation that was even lower than experts had predicted.  

“The Fed could dismiss the better-than-expected October as just one month’s data, but the further slowdown in November makes this new disinflationary trend harder to dismiss,” Paul Ashworth, chief North America economist for Capital Economics. 

WHAT IT MEANS FOR MORTGAGE RATES AND BEYOND 

The Federal Reserve is likely to ease up on its severity of its benchmark rate hikes. Instead of 0.75%, it’ll likely be 0.50% in tomorrow’s announcement. “The Federal Reserve has made sure to let the market know how many rate hikes are left and the speed,” said HousingWire Chief Economist Logan Mohtashami. “With today’s CPI data, that will seal the deal of 0.50% rate hike as the Fed has told the markets that the pace of rate hikes will slow.” 

Following the consumer price index release, mortgage-backed securities we were immediately thrilled. Which likely means rates will follow suit in a downward trend over the next couple of days.  

NEXT STEPS:  

• Explore rate locks – Even if you’re not thinking about buying right now, it could be a good idea to talk to us about locking in your rate. That way your rate won’t get any higher, but it can float lower one time if the market rates do.  

• Consider Rate Rebound – Rate rebound is another program we offer that lets you buy now at the current rate and refinance later with no lender fees if the market rates fall.*  

• Remember that the winter IS a good time to buy – Right now, there’s less competition, prices have been trending lower, sellers are offering more concessions, and builders are generally less busy; so the new year might be a good time to connect with your Realtor.  

Sources: HousingWire 

*CMG Home Loans will cover all customary lender fees which are processing fee, administrative fee, tax service fee, appraisal fee and credit report fee. In addition CMG Home Loans will also credit the borrower up to $1,000 towards additional third-party fees. This offer does not cover discount points. Credit cannot exceed total fees. Rate Rebound is only valid on future conventional conforming, government, and jumbo loans in our retail channel (future ARM Loans, Construction Loans, All in One, HELOCs, Bond or HFA loans are excluded). There may be additional restrictions based on investor. Offer may not be redeemed for cash or credit and is nontransferable. Offer cannot be retroactively applied to any loans. Offer may not be used with any other discounts, promotions or interest-only/buy-down and second lien products. This offer is subject to changes or cancellation at any time at the sole discretion of CMG Home Loans. Additional restrictions/conditions may apply. This is not a commitment to lend and is contingent on qualification per full underwriting guidelines. Program will be available on loans disclosed between 11/1/2022 - 6/30/2023. Program is applicable for refinances 6 months after closing up to 5 years from original note date and with a net tangible benefit which includes a rate reduction of 0.5%, going from an ARM to fixed rate, reducing loan term, movement to a more stable product, or a lower principal and interest payment. By refinancing the existing loan, the total finance charges may be higher over the life of the loan.