Consumer Inflation Not Backing Down

The Consumer Price Index (CPI) report showed prices are moving higher in many categories of goods and services than the market anticipated in the month of September.

The Headline number accelerated by .04% last month, exceeding expectations of .03%. On a 12-month basis, inflation is up 8.2%. Although this is down from the nearly 9% peak we saw in June, it is still just beneath levels we have not seen since the early 1980’s.

When you pull out food and energy prices from the report, Core CPI accelerated at a .6% pace last month, exceeding the .4% the market anticipated. Core Inflation was up 6.6% from a year ago, and well above the Fed’s target of 2%.

This report has sent shockwaves through the financial system, driving 10-Year Treasury Note yields above 4% shortly following the release. This is clearly not good news for the real estate market, as this has pushed mortgage interest higher. This will cause further hesitation among potential first-time home buyers as well as those who currently own a home but would like to upgrade.

Because homebuyers essentially are buying a “payment,” this makes a move to a more expensive home even more painful, which is reason for many to pause and wait for rates and home values to stabilize.

As we move into the month of November, we anticipate the annualized rate of inflation to show a more meaningful reduction. There is hope for improvement to mortgage interest rates not too far into the future. Let’s hope that employers slow their pace of hiring and we see deflationary pressures continue to grow.

With the painful reports now behind us, we could see a pause in the pace of mortgage rates moving higher in the near term. Although the hope of a meaningful reduction in mortgage rates is still a bit out, with rates already increasing ¼% from yesterday, we can float to see if markets regain some of what was lost.

As always, have your finger on the trigger and be ready to lock should the market continue to deteriorate.