September’s inflation report put recent borrowing-cost improvements at risk, complicating the outlook for loan officers counting on better pricing to move purchase and refinance borrowers forward.
The Consumer Price Index rose 3.7% from a year earlier, up from 3.4% in August, the Bureau of Labor Statistics reported Wednesday. Prices increased 0.6% over the month on a seasonally adjusted basis, following August’s 0.4% increase.
“The hotter report raises the odds of an October Fed rate hike, likely extending the wait for lower mortgage rates and offsetting some of the affordability gains from rising incomes and cooling house prices,” First American Senior Economist Sam Williamson said in comments following the release.
Recent Rate Gains Face Pressure
Rates had edged to another two-week low Tuesday, with its daily index for a top-tier 30-year fixed loan at 7.46%.
Reuters reported Wednesday morning that the benchmark 10-year Treasury yield rose approximately nine basis points to 5.304%. That move puts upward pressure on financing costs, although Treasury yields and retail loan pricing do not move in identical increments.
For LOs, further pricing deterioration could change payment estimates for unlocked purchase loans and narrow savings for prospective refinance customers. Financing can respond to changing investor expectations before the Fed announces its next decision.
Gasoline Led, But Core Inflation Didn’t Cool
Gasoline prices jumped 9.1% on a seasonally adjusted basis, accounting for more than half the monthly CPI increase.
Core prices, excluding food and energy, rose 0.3%, matching August’s pace but exceeding the 0.2% forecast cited by Williamson. Annual core inflation increased to 2.6% from 2.4%.
Underlying inflation therefore held its rounded monthly pace rather than accelerating, but failed to deliver the slowdown economists had anticipated. Headline annual inflation remained below May’s 4.2%, and food prices were unchanged in September.
Shelter prices rose 0.4%, following August’s 0.3% increase. Within that category, residential rent increased 0.2%, owners’ equivalent rent rose 0.3%, and lodging away from home increased 2%. CPI shelter measures rental costs and rental equivalence; it does not measure home-sale prices or mortgage interest expenses.
Less Room To Count On Rate Relief
Williamson said the report could bring forward a rate increase that markets had largely expected in December. The Fed meets Oct. 27–28, and its next move remains dependent on incoming data. Its 2% inflation objective is measured using the separate Personal Consumption Expenditures price index.
“For prospective home buyers, that could keep mortgage rates elevated for longer as investors adjust to the prospect of more persistent inflation, pushing meaningful affordability relief further out,” Williamson said.
He also warned that elevated rates reinforce the lock-in effect, limiting inventory and slowing sales.
For originators, the immediate question is whether current pricing still supports the borrower’s transaction. Further rate increases could raise payments on unlocked purchase loans or reduce the savings available through refinancing.
On purchase deals, price reductions, seller credits toward eligible closing costs, and permanent rate buydowns can address different affordability needs. Their value depends on the borrower’s upfront cash and ongoing payment.
September’s report gives LOs less reason to count on near-term rate relief to make those numbers work.
