Overall inflation rose 2.7% on an annual basis in November, matching consensus estimates, and marking the second consecutive month of accelerating prices after they rose 2.4% in September and 2.6% in October.
Shelter inflation rose 0.3%, lower than in previous months, but still accounting for nearly 40% of the monthly increase across all items, the Labor Department reported. Headline inflation and core inflation, which strips out volatile food and energy prices, each rose 0.3% from October.
Senior economist at First American, Sam Williamson, commented that November’s inflation data “aligned closely with consensus expectations, likely giving the Federal Reserve justification to cut interest rates by 25 basis points next week,” after its December 18-19 meeting.
Rising consumer prices, though, is unwelcome news for mortgage lenders, loan originators, and wishful homebuyers struggling to accept the reality that mortgage rate relief may still be a long way off.
Sharp Declines In The Mortgage Market
Multiple years of rising housing costs — from elevated mortgage rates to rapid home price gains to increased home insurance and property tax rates — have left many sidelined borrowers hunting for homes for more than a year.
Years of affordability challenges have opened a door for riskier financing. Recent figures from the Mortgage Bankers Association (MBA) indicate that investors are losing an appetite for high loan-to-value (LTV) and low-credit-score loans, which coupled with industry consolidation is taking a toll on the mortgage market’s liquidity.
Mortgage credit declined sharply in November, the fifth consecutive month of declines in the MBA’s Mortgage Credit Availability Index (MCAI). Government indices (-3.9%) reached their lowest levels since 2012, while the Jumbo MCAI decreased by 0.9%, and the Conforming MCAI fell by 6.6%.
Meanwhile, CoreLogic reported this week that nearly one million residential homes nationwide are languishing in negative equity, increasing by 30,000 homes, or 1.8%, in the third quarter as average equity gains rapidly decelerated on a year-over-year basis.
While jobs data for November indicated continued resilience among employers still keeping consumers employed in a restrictive rate environment, that data offered “mixed signals” on the Federal Reserve’s next move, Williamson commented last week.
The unemployment rate edged up from 4.1% in October to 4.2% in November, while total nonfarm payroll employment added 227,000 jobs, beating consensus estimates. A year earlier the jobless rate was 3.7%, revealing a not-insignificant year-over-year increase.
“Despite the jobs bounce back,” Williamson said, “the uptick in the unemployment rate likely boosts the chances of a quarter-point interest rate cut later this month by the Federal Reserve.”
That forecast remained unchanged after today’s inflation reading, Williamson says.
The central bank lowered its benchmark borrowing rate by 25 basis points to a target range of 4.50%-4.75% after its November meeting. Distorted labor data for October, released just prior to that November cut, had clouded year-end projections for further Fed rate cuts.
Expectations For 2025 Rates
The economic implications of campaign promises not to be settled until after the incoming Trump administration takes office in January hangs like a low-pressure system over housing. A broad consensus of economists agree that tariffs, mass deportations, and tax cuts will likely increase costs on average consumers.
Industry forecasts that home prices are entering a period of sustained deceleration could help more homebuyers qualify for mortgages — but not if rising consumer prices drive up 10-year Treasury yields — and consequently, mortgage rates, which closely track that benchmark.
“Assuming a more gradual pace of rate cuts in 2025, mortgage rates are generally expected to follow a similar path, likely settling in the mid-to-low 6 percent range by year-end,” commented Williamson on today’s inflation report.
The young families expected to drive home sales and price gains in 2025 have maintained their optimism, reports Fannie Mae, that mortgage rates will fall, despite industry consensus that average 30-year fixed-mortgage rates are unlikely to drop below 6% before 2026.
Last month’s rate-cut projections from the National Association of Realtors (NAR) broadened the horizon of future easing, suggesting six to eight rate cuts over the course of 2025 and 2026, data dependent.
Williamson added, “the pace of rate cuts may slow in 2025 due to strong economic data and ongoing inflation concerns."
