Mortgage rates hit 2-month high after week of sticky inflation data

Mortgage rates jumped to a two-month high following a release of government data this week that showed producer and consumer prices surpassed expectations in January, further dimming prospects of Federal Reserve interest rate cuts in the near future.

The average 30-year fixed mortgage rate hit 7.14 percent Friday, according to Mortgage News Daily. Mortgage rates jumped to 7.13 percent on Tuesday after the new consumer price index (CPI) came in hotter than expected.

Inflation fell to 3.1 percent in January, according to the latest data from the Bureau of Labor Statistics, down significantly from its 9 percent peak in June 2022 but far from the Fed’s goal of 2-percent inflation.

The producer price index (PPI), which measures fluctuations in prices paid to U.S. producers, rose 0.3 percent from December to January, outstripping expectations of a 0.1 percent bump.

“Recent elevated inflationary data, including today’s Producer Price Index report, is likely to push yields and therefore mortgages higher, which could prove an additional headwind to the housing market in the near term,” said Eugenio Aleman, chief economist at Raymond James.

“The PPI for final demand was higher than expected in January, following a CPI report that also disappointed earlier in the week,” he added. “The report is still showing very strong price pressures on the service side of the economy while goods prices remain under pressure.”

The central bank has raised interest rates 11 times since March 2022 in an attempt to bring down inflation, fueling the surge in mortgage rates to their highest level in more than two decades.

Mortgage rates topped 8 percent at their peak in October, according to the daily mortgage index. Rates dropped below 7 percent in December after the central bank signaled it planned to cut interest rates this year, but they’ve ticked up again amid new data showing sticky inflation.

High rates have depressed the average homebuyer. So far this year, mortgage applications are down in more than half of states compared to the same period in 2023, according to Freddie Mac data.

Meanwhile, investors bought a record 26.1 percent of low-priced housing in the fourth quarter of 2024, according to a recent report by the real estate company Redfin.

“Elevated home prices and mortgage rates, along with sluggish rents, have made low-priced homes increasingly attractive to investors,” the company said in a statement.