Inflation Is Still Rising. Will Mortgage Rates Follow?

For nearly a year now, persistent inflation in the U.S. economy has forced the Federal Reserve to hike up its short-term interest rates to improve affordability, particularly in a volatile housing market. Despite price corrections in a number of regional markets, the government’s Consumer Price Index (CPI) revealed a gradual increase in July.

That uptick seems like a worrisome sign for homebuyers waiting for mortgage rates to decelerate, but according to Realtor.com, July’s inflation data may not be as detrimental as it seems. 

In July, inflation ticked up to 3.2%, up from 3% the month before, according to the government’s consumer price index released on Thursday. The report might look a bit worse at first glance than it actually is, say real estate economists.

July’s inflation data is being compared with July 2022, when inflation had already begun to cool. That’s going to result in higher results a year later. Plus, if the increases were annualized, it would put inflation for the year at 2%—the Fed’s goal.

“It raises the odds that Fed will keep rates steady,” says Realtor.com Chief Economist Danielle Hale. “Mortgage rates can steady, maybe even start to decline from where they are.”

“Our expectation is that when inflation gets back to target, we will start to see all kinds of rates start to decline,” says Hale. She expects rates will head below 7% in the coming days. “We should see mortgage rates ease, but they’re not going to do so quickly.”

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