Economic Indicators Signal Continued Pressure on Housing Market

Mortgage rates climbed to their highest level since early February this week, while economists prepare for inflation data that could influence the Federal Reserve’s future policy decisions and further impact borrowing costs.

According to mortgage buyer Freddie Mac, the average rate on a 30-year mortgage increased to 6.89 percent from 6.86 percent the previous week. While this represents a modest weekly increase, the current rate remains below the 7.03 percent average from the same period last year. Borrowing costs on 15-year fixed-rate mortgages also experienced a slight uptick during the same period.

The mortgage rate movement comes as markets await the release of April’s inflation report, which economists expect will show persistent price pressures above the Federal Reserve’s 2 percent target. Forecasts suggest personal consumption expenditure prices will rise 2.2 percent annually, with core inflation, which excludes volatile food and energy costs, reaching 2.6 percent. This core PCE index serves as the Federal Reserve’s preferred inflation gauge and plays a crucial role in monetary policy decisions.

The relationship between inflation data and mortgage rates has become increasingly significant as the Federal Reserve weighs its next moves on interest rates. Higher inflation typically drives interest rates upward, making borrowing more expensive across various financial products. Market analysts suggest that persistent inflation above the Fed’s target could limit the central bank’s ability to cut rates, potentially keeping mortgage rates elevated and continuing to challenge homebuyers.

Some market observers believe the inflation data may not trigger dramatic market reactions, noting that short-term economic numbers can be unpredictable. However, the combination of rising mortgage rates and stubborn inflation signals ongoing headwinds for the housing market, as prospective buyers face both higher borrowing costs and elevated home prices.

Economic forecasts suggest mortgage rates will likely remain in the 6.5 to 7 percent range throughout 2025, with any significant decline dependent on sustained progress in bringing inflation closer to the Federal Reserve’s target level.