Author: Eric BernsteinPublished:
The average rate on a 30-year fixed rate conventional loan declined slightly to 6.47%. 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 is coming in HOT
Inflation came in at levels we haven’t seen since 2022, keeping pressure on the Fed and forcing mortgage rates to stay elevated.
CPI: Inflation heated up again in May, with consumer prices rising 0.5% for the month and 4.2% year-over-year, the highest annual reading in three years. The main driver was energy, which jumped 3.9% on the month and is now up 23.5% from last year, while core inflation was more manageable at 2.9% annually. Still, the headline number is ugly for consumers and for rate-cut hopes. Trump, asked about the report, said, “I love the inflation,” arguing that prices would come down once the war with Iran ends. However, the longer the war prolongs, the less likely this will be.
PPI: Producer prices were even worse. Wholesale prices rose 1.1% in May, well above expectations, pushing annual producer inflation to 6.5%, the highest since November 2022. Like CPI, much of the pressure came from energy, with wholesale gasoline prices surging 23.4%, but the bigger concern is that higher producer costs can eventually get passed down to consumers. Businesses can only absorb rising input costs for so long before those costs start showing up in everyday prices.
For mortgage rates to move meaningfully lower, markets need to see inflation cooling, not reaccelerating. If we want rates to fall back to where they were in February, the next few inflation reports need to show real progress toward the Fed’s 2% target.
ADP: Private payrolls also beat expectations, with companies adding 122,000 jobs in May versus the 110,000 expected. The gains were broader than we’ve seen recently, with hiring spread across most major sectors instead of being concentrated in just healthcare.
Buyers May Be Getting Used to Higher Rates
Higher mortgage rates still matter, but they may not be freezing the housing market the way they did before. Existing home sales jumped 3.2% in May to the highest level since December, even as mortgage rates moved higher and affordability remained stretched. That doesn’t mean buyers are immune to rates, but it does suggest some are adjusting to the “higher for longer” environment, especially as inventory improves and more people who delayed moving are finally getting back into the market.
That said, these are national numbers, and housing markets can be extremely local. Some markets are still tight because demand is high and supply is limited, while others have more inventory and more room for buyers to negotiate.
Possible Iran Deal Sends Oil Lower
This could be huge news for inflation and, by extension, mortgage rates. The U.S. and Iran reportedly reached an interim agreement to reopen the Strait of Hormuz, restart Middle East oil shipments, and continue negotiations over Iran’s nuclear program. Oil prices fell and stocks shot up on the news, which matters because higher energy costs have been one of the biggest reasons inflation has reaccelerated. Lower oil prices would help ease inflation pressure, which could reduce pressure on the Fed to hike rates and give mortgage rates some room to move lower. In fact, the odds of a Fed rate hike in 2026 dropped from 70% to 54.4% after the news broke.
That said, we’ve been burned before by headlines about a deal being close, so this isn’t done until it’s actually signed. The agreement is expected to be formally signed in Switzerland on June 19, and there are still major unresolved issues, including sanctions, financial incentives for Iran, and the future of Iran’s nuclear program. Trump also said that if a nuclear agreement is not reached, he could restart military strikes, so while this is a major step in the right direction for inflation and mortgage rates, we still need to see the deal finalized.
What to expect this week?
This is a big week for rates, with the Fed decision on Wednesday and several housing and consumer reports that could move markets. After last week’s hot inflation data and then the weekend news of a possible U.S.-Iran deal, markets will be watching closely to see whether inflation pressure is actually starting to ease or if rates need to stay elevated.
Monday starts with manufacturing data, industrial production, capacity utilization, and home builder confidence. The home builder confidence index is expected to stay at 37, which would still point to a tough environment for builders dealing with high rates and affordability issues.
Tuesday brings import prices, housing starts, and building permits. Import prices matter because they can show whether higher energy costs and tariffs are continuing to push inflation into the economy. Housing starts and permits will give us a fresh look at builder activity and future supply.
Wednesday is a BIG day. Retail sales come out in the morning, with headline sales expected to rise 0.5%, which would show consumers are still spending despite higher prices and higher rates. Pending home sales are also expected to rise 1.0%, another sign that buyers may be adjusting to the higher-rate environment. Then at 2:00 p.m., the Fed announces its interest-rate decision, followed by Chair Warsh’s first press conference at 2:30. The Fed is expected to hold rates steady, but what Warsh says about inflation, the labor market, oil prices, and the possibility of future hikes will matter more than the decision itself.
Thursday brings initial jobless claims, the Philadelphia Fed manufacturing survey, and the leading economic index. Jobless claims are expected to stay relatively low, which would point to a labor market that is still holding up. That’s good for the economy, but it could also make it harder for the Fed to justify lower rates.
Friday is Juneteenth, so there are no major reports scheduled.
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)
