At the beginning of the year, mortgage interest rates surged above 7%. However, borrowing costs have since experienced a fourth consecutive week of decreases. This Week in Real Estate, the 30-year fixed-rate mortgage averaged 6.87%, a slight decline from the previous week’s average of 6.89%, marking the lowest level thus far in 2025. According to the Labor Department’s Consumer Price Index (CPI), annual inflation rose for the fourth consecutive month in January. Housing costs continued to be a significant driver of overall inflation. The shelter index, which accounts for more than a third of the overall CPI, increased by 4.4% in January compared to the same period last year. Despite this rise, January’s shelter index represented the lowest annual figure for shelter inflation in three years. Below are key events from the second week of February impacting our business:INFLATION ACCELERATED IN JANUARY. Inflation edged up to a six-month high in January and showed little progress from a year ago. The persistent inflation rate indicates the last mile to the Fed’s 2% target continues to be challenging and is consistent with the Fed’s cautious stance amid solid economic growth and growing uncertainty. While core inflation remained stubborn due to elevated shelter and other service costs, housing costs showed signs of cooling – the year-over-year change in the shelter index remained below 5% for a fifth straight month and posted its lowest annual gain since January 2022, suggesting a continued moderation in housing inflation. During the past twelve months, on a non-seasonally adjusted basis, the Consumer Price Index rose by 3.0% in January, according to the Bureau of Labor Statistics’ report. This followed a 2.9% year-over-year increase in December. Excluding the volatile food and energy components, the “core” CPI increased by 3.3% over the past twelve months, following a 3.2% increase in December. The “core” CPI has held near 3.3% since May 2024. A large portion of the “core” CPI is the housing shelter index, which increased 4.4% over the year, following a 4.6% increase in December. On a monthly basis, the CPI rose by 0.5% in January (seasonally-adjusted), after a 0.4% increase in December. The “core” CPI increased by 0.4% in January, the highest monthly gain since March 2024. The index for shelter makes up more than 40% of the “core” CPI, rose by 0.4% in January, following an increase of 0.3% in December. Read the full story here.MORTGAGE RATES DIP BELOW 7% AFTER RETAIL SALES SURPRISE. This Valentine’s weekend brought an unexpected gift to the housing market as a weaker-than-expected retail sales report sent the 10-year yield tumbling, bringing mortgage rates down to under 7%. Let’s look at what happened in this wild week for rates and bonds. The drama started with the release of the Consumer Price Index (CPI) report, which came in hotter than anticipated. This prompted a swift jump in the 10-year yield from 4.52% to 4.66%, pushing mortgage rates up from 7.04% to 7.13%, according to Mortgage Daily News. When it seemed like mortgage rates were on a relentless climb, the Producer Price Index (PPI) added to the tension by coming in higher than expected. However, the core components of that PPI report, pivotal for the Fed’s inflation tracking, showed softening signs, particularly in the Personal Consumption Expenditures (PCE) inflation report. As a result, the 10-year yield dropped to 4.52%, and mortgage rates responded in kind, offering a glimmer of hope for potential homebuyers. The cherry on top came Friday when retail sales figures missed expectations, leading to a further dip in the 10-year yield and pushing mortgage rates comfortably below that crucial 7% mark. Just remember that if the economic data gets weaker, then the 10-year yield and mortgage rates will go lower, like they have the past two years. However, to get mortgage rates below 5.75%, you really need the labor market to break. Or you need the Fed to cut the Fed funds rate one more full percent, making it is easier to get mortgage rates toward 6% for the marketplace. Read the full story here.RESIDENTIAL CONSTRUCTION INPUT PRICES INCREASE TO START THE YEAR. Prices for inputs to new residential construction – excluding capital investment, labor, and imports – were up 1.2% in January according to the most recent Producer Price Index (PPI) report published by the U.S. Bureau of Labor Statistics. The inputs to the New Residential Construction Price Index grew 1.1% from January of last year. The index can be broken into two components – the goods component increased 2.1% over the year, while services decreased 0.3%. The goods component has a larger importance to the total residential construction inputs price index, representing around 60%. For the month, the price of input goods to new residential construction was up 1.6% in January. Monthly growth of the index was relatively low in the past two years, as this monthly increase was the largest since March of 2022 (3.3%). While prices of inputs to residential construction for services were down 0.3% over the year, they were up 0.5% in January from December. Read the full story here.
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