Author: Eric BernsteinPublished:
This past week delivered a trifecta of inflation reports, and none of them were good news for homebuyers or anyone hoping for rate relief. Taken together, CPI, PPI, and the Import Price Index painted the picture of an inflation problem that is accelerating, moving further away from the Fed's 2% target, sending mortgage rates much higher in response.
The average rate on a 30-year fixed rate conventional loan jumped to 6.499% (the highest since August 25, 2025). See what rates we're offering by signing up for our Friday rate texts.
Our LendFriend Learning Center now has over 300 articles to help homebuyers buy with confidence. Check out our top articles of the week at the bottom of this email.
Inflation Spells Trouble
CPI: Highest Since May 2023
Consumer prices rose 3.8% year over year in April, up sharply from 3.3% in March and the highest annual reading since May 2023. Energy was the headline driver with gasoline up nearly 30% over the past year and the national average now sitting at $4.50 per gallon, but this wasn't just an energy story. Shelter costs (home and rental prices) jumped after easing in prior months, tariff-sensitive categories like apparel and household furnishings moved higher, and airline fares surged more than 20% annually. Core CPI came in at 2.8%, still well above the Fed's 2% target. The report also showed that real wages fell for the month and are down on the year, meaning inflation is now eating up all wage gains for the first time in 3 years, which is a real problem for the Fed.
PPI: Biggest Annual Jump Since December 2022
The day after CPI, wholesale prices delivered an even bigger shock. The Producer Price Index rose 1.4% for the month, nearly 3x the consensus estimate, putting the annual rate at 6% and the largest increase since December 2022. Energy again led the charge, but what concerned economists more was the breadth of the move. The services index saw its biggest gain since March 2022, with two thirds of that driven by a surge in trade services, a clear sign that tariff costs are beginning to work their way into prices more broadly. The PPI matters for mortgage rates because it's a leading indicator of where consumer prices are headed, and this report signals the pipeline is very much pressurized.
Import Prices: Highest Since 2022
Thursday brought the Import Price Index, and it too came in well above expectations. Import prices jumped 1.9% for the month, double the consensus forecast, putting the 12-month gain at its highest level since October 2022. Export prices were even more dramatic, rising on both a monthly and annual basis to levels not seen since late 2022. Fuel costs were the primary driver, but nonfuel imports also rose on higher prices for capital goods and foods and beverages. As one economist put it, the dam has broken and importers can no longer hold off passing higher costs to buyers.
What This Means for Mortgage Rates
Mortgage rates track the 10-year Treasury yield closely, and the 10-year has moved higher in response to this inflation surge. When inflation data consistently shows higher than expected inflation across all three reports this week, bond investors demand higher yields to compensate for the erosion of purchasing power, and mortgage rates rise with them. The 10-year Treasury is now hovering around 4.6%, and 30-year mortgage rates have climbed meaningfully from the lows we saw earlier in the year.
With the Fed on hold and the path to rate cuts looking increasingly distant, the CME FedWatch Tool is now pricing in a greater than 50% chance of a rate hike by the December meeting. That's a major shift, and it's happening even as Kevin Warsh takes over as Fed Chair, a pick widely seen as more aligned with President Trump's desire for lower rates. The inflation data simply doesn't give him room to move in that direction right now. Until we see sustained improvement across CPI, PPI, and import prices, mortgage rates are likely to stay elevated, and the direction they move from here depends almost entirely on whether this inflation wave peaks soon or continues to build.
Existing Home Sales Shows More Inventory, More Negotiating Power
Existing home sales came in at a seasonally adjusted annual rate of 4.02 million units in April, essentially flat from a year ago but still a sign that buyers haven't walked away despite the recent rate move upwards. The national median price held near $417,700, inventory continues to slowly improve, and days on market are lengthening, which means less competition and more negotiating room for buyers than we've seen in years for many parts of the country.
In Austin, we continue to see one of the more compelling opportunities in the country for buyers right now. Pending sales are up over 15% year over year, closed sales ticked higher, and the median price of $440,000 is still running slightly below where it was a year ago. Homes are still closing at about 94 cents on the dollar, meaning sellers are still coming off their list price and ready to make some kind of deal with buyers. Active listings are tightening though, down about 15% year over year, so the window of buyer leverage that has defined the Austin market over the past year or two is starting to close if the trend continues. Buyers who move with clarity and conviction right now are finding deals that simply won't be available once demand fully catches up.
What to expect this week?
After last week's heavy inflation reporting, markets get a bit of a breather this week, though there are still a few reports that could move rates
Tuesday brings pending home sales for April, which will tell us whether buyers kept moving despite the surge in rates last month. The forecast is 1.5%, matching March's reading, which would signal that demand is holding up even in a challenging environment.
Wednesday is the one to watch. The minutes from the Fed's May FOMC meeting drop at 2pm, and given how divided the committee has been, markets will be combing through every line for clues on how the new Fed leadership under Kevin Warsh is approaching inflation and the rate path. With over 50% odds of a hike now priced in by December, any language that feels hawkish could push mortgage rates higher.
Thursday is the data heavy morning with housing starts, building permits, and jobless claims all hitting at once. Housing starts are expected to pull back from March levels, which would reflect the reality that builders are feeling the pinch of higher rates and softer buyer demand. The Philly Fed manufacturing survey will also give a read on whether the broader economy is weathering the inflation shock.
Friday closes things out with final consumer sentiment for May, expected to come in near historic lows, and leading economic indicators, which have been pointing negative for several months running.
I'm always here to help so if you have any questions or just want to learn more, schedule a call or connect with me here.
.png?width=1200&height=244&name=Homebuyer%20Tools%20Header%20(10).png)
