It feels like we’re repeating history, and not the fun kind.
Inflation readings have come in at their worst since 2023, when the 30-year fixed rate appears to be peaking in the cycle at around 8%.
But this time, mortgage rates are unchanged, seemingly unaffected by rapid inflation.
As for why, it’s likely that core inflation, which strips out food and energy, came in below expectations for the month.
There’s also the bigger picture of the war in Iran, which seems to be carrying a lot of the weight of the loan amounts (and everything else) at the moment.
Inflation Rises Above 4%, But Mortgage Rates May Fall Today
As noted, prices saw their worst increase since April 2023, with today’s CPI report revealing a 4.2% year-on-year rise in prices in May.
However, that was accompanied by bad predictions as it may seem.
Additionally, core inflation, which leaves out volatile items such as food and energy (albeit America’s most important daily expenses), came in below expectations at 0.2% for the month.
That was down from 0.4% in the previous reading and missing the forecast of 0.3%, while annual core CPI came in at a forecast of 2.9% (up only slightly from 2.8% YoY previously).
This is probably what is keeping bond yields down, despite alarm bells ringing and calls for a second wave of inflation.
Finally, much of the inflation currently appears to be passing through due to the oil boom related to the Middle East conflict and other residual tax passes.
If that’s true, it explains why bond yields aren’t rising much today, and have recently been very low.
The Market (and Mortgage Rates) Are Always Focusing on a War Decision
Ultimately, the market (and loan rates) continue to focus on the Middle East and some sort of resolution there.
If you remember, things were looking pretty good before the conflict started at the end of February.
The 30-year mortgage was the lowest since the summer of 2022, with a 3.5-year decline.
Importantly, it was averaging below 6% for the first time in years, which is enough to get many home buyers interested in moving forward again.
It is also good enough for countless amount and long term cash back loans in pencil for those with high interest rates.
But before we knew it, prices were back above 6.50% and headed for the 7s again before cooling off.
I’ve said for a while that we could see the levels get worse before they get better again, with the 7 handle likely to be real.
The only thing that seems to be preventing this is the prospect of a solution in the Middle East, which continues to be “closer,” according to President Trump.
But then he took to his Truth Social platform to accuse Iran of “taking too long to negotiate a deal that would have been good for them.”
And that “now they will have to pay the price!!!”
We’ve seen this movie before (countless times lately), and at some point if progress is made, the market may turn on Trump.
Whether that leads to higher bond yields and higher mortgage rates remains to be seen, but so far they have been able to weather the tepid jobs and inflation reports.
Just wondering if bond sellers are finally losing patience and we’re seeing yields rise, perhaps out of fear that the Fed is going back into hiking mode.
We’ll find out more about that next week when new Fed chairman Kevin Warsh leads his first meeting on June 16-17.
Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 20 years ago to help prospective (and current) home buyers better navigate the mortgage process. Follow me on X for the hottest.
