The latest Consumer Price Index is out — and it doesn’t bode well for homebuyers already cracking under the pressure of rising mortgage rates.
The index rose 0.4 percent month over month on a seasonally adjusted basis, bringing the 12-month non-adjusted increase to 3.4 percent. Meanwhile, the core CPI, which excludes food and energy prices, increased 0.3 percent month over month; 0.1 percentage point higher than analyst forecasts. The core annual rate clocked in at 2.4 percent, a slight decrease from July’s 2.5 percent.
Sam Williamson
First American Senior Economist Sam Williamson said Friday’s CPI report will likely push the Federal Reserve to increase the federal funds rate (short-term rate) at its next Federal Open Market Committee (FOMC) meeting on Sept. 16.
“That tilts the Federal Reserve toward a rate hike and pushes mortgage-rate relief further out,” he said in an emailed statement. “Rising incomes and cooling house prices are helping buyers regain purchasing power, but elevated borrowing costs are still winning the affordability tug of war.”
At its last meeting, the Fed held the federal funds rate (the short-term rate) steady at 3.5 to 3.75 percent. Currently, the CME FedWatch has put the probability of a hike at 85.4 percent — a 23 percentage point increase from only two days ago. Meanwhile, the probability of no change has shrunk even further, going from 37.6 percent to 14.6 percent.
The federal funds rate impacts how banks and financial institutions set their rates, including mortgage rates. It’s important to note that a change in the federal funds rate does not guarantee mortgage rates will move in tandem, but recent rate trends understandably have the housing market biting its nails.
The average 30-year fixed mortgage rate reached a 16-month high on Wednesday, rising 8 basis points from Tuesday to 6.97 percent. The steady climb in rates is already reverberating throughout the market, with home sales sliding 10.7 percent from July to August.
“For homebuyers, the path to lower mortgage rates still runs through lower inflation,” Williamson said. “Over time, more restrictive policy may help by convincing investors that inflation will come back under control, but meaningful rate relief remains out of reach for now.”
Jake Krimmel | Credit: Realtor.com
Although the focus is on what the Fed will do with the federal funds rate, Realtor.com Senior Economist Jake Krimmel said the CPI has bigger stakes beyond that. Even if the Fed decides to hold steady, the affordability outlook is grim for homebuyers as the price of food, gasoline and other goods impedes their ability to purchase a home.
“Right now, regardless of how the Fed parses this potentially pivotal CPI read, all three consumer signals are pointing in the wrong direction,” he said. “August gas prices are part of why headline inflation remains so high and well above core; elevated prices hurt household savings; and mortgage rates again hit 2026 highs yesterday — a trend that looks poised to continue.”
Existing and pending home sales are already struggling, despite inventory reaching its highest level in years and homesellers responding to market headwinds with a greater share of price reductions. The hopes of a robust fall homebuying season are dissipating, with Krimmel noting the market is at risk of a “September stall.”
“Regardless of how tomorrow’s CPI report influences next week’s Fed decision, households and the housing market need a path toward lower inflation — for purchasing power, consumer confidence and lower mortgage rates next year,” he said.
