Inflation Eases and Mortgage Rates Decline

Tariff developments and geopolitical tensions kept markets uneasy this week, but the biggest surprise came from soft inflation data. Mortgage rates responded positively and ended the week slightly lower.

Consumer Inflation Falls Below Forecast

The Consumer Price Index (CPI), a key inflation gauge, showed that core prices rose just 0.1 percent in May, far below the expected 0.3 percent increase. Year over year, Core CPI was up 2.8 percent, maintaining its lowest level since March 2021. Lower inflation readings can lead to lower mortgage rates, which improves affordability for homebuyers and may increase demand in the residential real estate market.

Shelter Costs Remain Sticky

Despite the cooling in overall inflation, shelter costs continue to be a stubborn source of price pressure. These housing-related costs have made further disinflation more difficult. Meanwhile, prices fell notably for used vehicles, new vehicles, and apparel. Persistent shelter inflation reflects ongoing pressure on rental and housing costs, which supports property values and signals strength in the residential real estate sector.

Producer Price Data Also Soft

The Producer Price Index (PPI), which measures wholesale costs, rose just 0.1 percent in May, also below expectations. The annual rate came in at 3.0 percent, a slight dip from the prior month. Although not as influential as CPI, PPI provides another signal that inflation may be easing. Easing producer prices could signal future stability in construction and renovation costs, making it slightly easier for homebuilders and sellers to price competitively.

Geopolitical Tensions Have Mixed Effect

Tensions in the Middle East briefly impacted markets, but the overall effect was balanced. Investors tend to buy bonds during geopolitical conflicts, which supports lower mortgage rates. However, rising oil prices from the conflict may increase inflation over time, which can push rates higher. While geopolitical uncertainty can create short-term dips in mortgage rates, sustained inflation from rising energy costs could reduce affordability in the housing market.

Takeaway for Buyers and Sellers

The sharp drop in inflation this week has given the market some breathing room. If price pressures continue to ease and mortgage rates stay stable or decline further, the residential real estate market could see renewed momentum heading into summer.

If you are considering buying or selling, now is a great time to discuss how falling inflation may open the door to better financing options and stronger market activity.