Steady Inflation

Mortgage markets were relatively quiet over the past week. Although the inflation data was a bit lower than expected, there was little reaction. Mortgage rates ended the week slightly higher but remain near their lowest levels in three years.

Although this annual rate has dropped sharply from a peak of 6.6% in September 2022, it is still well above the readings around 2.0% seen early in 2021, which is the stated target level of the Fed. Overall prices are up about 25% since January 2020, more than double the roughly 10% increase seen in the prior five-year period. Shelter (housing) costs were up 3.2% on an annual basis and continue to be a primary reason why progress in bringing down inflation remains challenging. Other areas seeing significant increases included recreation, airfares, and medical care.

In December, sales of existing homes climbed 5% from November, well above expectations, to the highest level in nearly three years. For the full year, there were 4.06 million sales of previously owned homes, the same amount as in 2024. The median price of $405,400 was up a slim 0.4% from last year at this time. Inventories remain stuck at low levels, standing at just a 3.3-month supply nationally, far below the roughly 6-month supply typical in a balanced market. However, inventories were 4% higher than a year ago. 

It was a good week for mortgage applications, especially for refinancing, according to the Mortgage Bankers Association. Applications to refinance jumped 40% from last week and were a massive 128% higher than one year ago. Purchase applications rose 16% from the prior week and were up 13% from last year at this time. 

Looking ahead, investors will continue to monitor comments from Fed officials for hints about future monetary policy. It will be a very light week for economic data, with mostly reports from several months ago which were delayed by the government shutdown. Mortgage markets will be closed on Monday for MLK Day.