Weekly Mortgage Rates Dip as Inflation Heats Up

Mortgage rates fell slightly in the week ending Nov. 14, marking the first time weekly rates have gone down since September. The average rate on a 30-year fixed-rate mortgage dropped seven basis points to 6.79%, according to rates provided to NerdWallet by Zillow. A basis point is one-one hundredth of a percentage point.

Housing costs are driving inflation up

While everyone’s familiar with the sting of inflation at this point, renters are feeling it particularly sharply.

Rising housing costs accounted for more than half of the increase in October’s consumer price index (CPI), a measure of the cost of goods and services in the U.S. released by the Bureau of Labor Statistics on Nov. 13. The shelter cost index rose 0.4% on a seasonally adjusted basis, compared with overall month-over-month inflation growth of 0.2%.

Unadjusted, shelter costs increased 4.9% year-over-year. According to Realtor.com’s chief economist Danielle Hale, this is still higher than the pre-pandemic average growth of 3.3% from 2017-2019.

What this means for mortgage rates

High rents could be hindering mortgage affordability on two fronts. For one, they leave would-be home buyers with less to save each month toward a down payment fund. Second, by contributing to inflation, housing costs could play a role in central bankers’ decision-making if they choose to pump the brakes on rate cuts.

While the Federal Reserve doesn’t directly set mortgage rates, central bankers do control the federal funds rate, which establishes the interest rate that banks pay to borrow from each other overnight. This influences mortgage rates, which usually move up or down accordingly.

In a press conference following the conclusion of the Federal Open Market Committee (FOMC) meeting on Nov. 7, chairman Jerome Powell commented that most economic indicators since the September meeting were fairly strong, save for the previous inflation report that “wasn’t terrible, but it was a little higher than expected.”

“So, I think really the question is December,” he told reporters.

At least for now, Fed watchers don’t seem too concerned that December’s anticipated rate cut is at risk following this latest CPI report. Most analysts still believe we’re due for another 25-basis-point chop. While Powell said that “the job's not done on inflation,” he also affirmed the Fed’s perspective that a more relaxed interest rate policy would achieve better balance between inflation and employment.

If the Fed does decide to cut rates again in December, don’t take it for granted that the trend will continue into 2025. Given the persistence of inflation combined with uncertainty about the incoming Trump administration’s monetary plans, commentators are projecting that the Fed could take a more conservative approach at the start of the new year.

In an analysis of the October CPI report, Wells Fargo senior economists Sarah House and Michael Pugliese wrote: “We think the time is fast approaching when the FOMC will signal that the pace of rate cuts will slow further, perhaps to an every-other-meeting pace starting in 2025.”