Housing Inflation Rebounding

December 29, 2023

The Fed will not be able to get inflation under control with a booming housing market because housing makes up 40% of the inflation basket, and with housing currently rebounding, the risks are rising that the shelter components of inflation will stay elevated and complicate the Fed’s path back to the 2% inflation target, see charts below. The bottom line is that the Fed will keep rates higher for longer than the market is currently pricing.

Source: Dr. Torsten Sløk, Apollo Chief Economist

Mortgage Rates: Daily Rate Index

Yesterday was the most interesting day of the past two weeks, but that's not saying much. The past two weeks have been the calmest for mortgage rates in more than a year, with the average lender essentially unchanged since December 14th. Yesterday's excitement came in the form of a more normal level of volatility.

It didn't hurt that the volatility was in the direction of lower rates. With that moderate improvement, the average lender was just barely at the lowest levels since May 2023. Today saw a pushback in the other direction, but not nearly as "normal" in size as yesterday's drop. As such, apart from yesterday, the average lender is still in line with 7-month lows.