It feels like we’re repeating history, and not the pleasant kind.
Inflation readings came in at their worst since 2023, which incidentally was when the 30-year fixed seemed to peak this cycle around 8%.
But this time around, mortgage rates are holding steady, seemingly undeterred by the rapid price increases.
As for why, it might be that core inflation, which removes food and energy, came in below expectations for the month.
There’s also the bigger picture of the Iran war, which seems to carry a lot more weight for mortgage rates (and everything else) at the moment.
Inflation Rises Above 4%, But Mortgage Rates Might Come Down Today
As noted, prices saw their worst increases since April of 2023, with today’s CPI report revealing a 4.2% increase in prices year-over-year in May.
However, that was in line with forecasts as bad as it might look.
In addition, core inflation, which omits volatile stuff like food and energy (although your everyday American’s key costs), came in below expectations at 0.2% for the month.
That was down from 0.4% in the prior reading and short of the 0.3% forecast, while annual core CPI came in at forecast at 2.9% (only up slightly from 2.8% YoY previously).
This is perhaps what is keeping bond yields at bay, despite some ringing alarm bells and calling for a second wave of inflation.
Ultimately, a lot of the inflation stuff right now is being seen as transitory due to the oil spike related to the Middle East conflict and some remnants of tariff pass-through.
If that holds true, it explains why bond yields aren’t ripping higher today, and lately have been mostly flat.
The Market (and Mortgage Rates) Remain Focused on a War Resolution
Ultimately, the market (and mortgage rates) continue to focus on the Middle East and some sort of resolution there.
If you recall, things were looking pretty good prior to the start of the conflict at the end of February.
The 30-year fixed mortgage was the lowest it had been since the summer of 2022, at essentially 3.5-year lows.
Importantly, it was averaging below 6% for the first time in years, enough to get many prospective home buyers interested in moving forward again.
And good enough for countless rate and term refinance loans to pencil for those with higher interest rates.
But before we knew it, rates were back above 6.50% and appeared headed for the 7s again before cooling off.
I’ve said for some time that we could see rates get worse before they get better again, with a 7-handle a real possibility.
The only thing that seems to be preventing this is hope of resolution in the Middle East, which continues to be ever so “close,” according to President Trump.
But then he took to his Truth Social platform to accuse Iran of taking “too long to negotiate a deal that would have been great for them.”
And that “now they will have to pay the price!!!”
We’ve seen this movie before (countless times lately), and at a certain point if progress isn’t made, the market might turn on Trump.
Whether that leads to higher bond yields and higher mortgage rates remains to be seen, but thus far they’ve been able to withstand both hot jobs reports and hot inflation reports.
You just wonder if bond traders lose patience eventually and we see yields climb, perhaps on fears the Fed goes back into hiking mode.
We’ll find out more about that next week when new Fed chair Kevin Warsh helms his first meeting June 16-17th.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 20 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.
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