The September 2024 Consumer Price Index (CPI) Report points to rainy days ahead, with inflation data clouding the outlook on the Federal Reserve easing rates.
Today, the U.S. Bureau of Labor Statistics released its September 2024 Consumer Price Index (CPI), which increased 0.2% on a seasonally adjusted basis, the same increase as in August and July. In the last 12 months, annual inflation shot up 2.4% before seasonal adjustment — the smallest 12-month increase since February 2021.
As housing costs continued to decelerate, annual inflation dropped to 2.4% last month. The Core CPI reported last Thursday (excluding food and energy) rose 3.3% over the last 12 months.
“Lower inflation suggests that mortgage rates will come down further this fall. However, mortgage rates are impacted by broader economic conditions,” says Bright MLS Chief Economist Lisa Sturtevant. “If labor market conditions continue to outpace expectations, we could see mortgage rates increase or at least not fall further. We already saw an uptick in mortgage rates this week on the heels of the strong jobs report.”
Last week, the September jobs report showed a resilient labor market, with payroll growth far exceeding expectations and unemployment ticking down slightly to 4.1%. This was welcome news to everyone else but the mortgage industry, as many expect a strong labor market to convince the Fed to slow down or pause its interest rate cuts.
First American Senior Economist Sam Williamson said a warmer-than-expected September CPI with core CPI “particularly surprising to the upside” labor market and payroll data will be critical in determining further Fed easing.
“A higher-than-expected headline and core CPI print likely reduces the chances of a Fed rate cut in November, though a 25-basis point cut remains the baseline expectation,” Williamson said. “Friday’s PPI release will offer further clarity.”
Realtor.com Senior Economist Ralph McLaughlin said that the latest inflation data indicates that "the Fed seems to have flared at the right time to nail a soft landing" with its 50 bps rate cut last month.
McLaughlin forecasts two further quarter-point cuts through the end of the year, and predicts mortgage rates will remain stable — at least until further inflation data is released at the end of October.
According to Freddie Mac, the average rate on the 30-year fixed mortgage stood at 6.12% last week, a slight increase from the prior week, but down more than 1.3 percentage points from a year earlier.
The market’s enthusiasm on rate cuts was premature, Freddie Mac’s economists stated, as the fall in mortgage rates stalls due to a rebound in short-term rates. Looking at the big picture, however, mortgage rates have declined 1.5 percentage points over the last 12 months; home price growth is slowing; inventory is increasing, and incomes continue to rise. Therefore, the backdrop for homebuyers this fall is improving and should continue through the rest of the year.
