Inflation refuses to go away
Melissa Cohn (pictured right), regional vice president of William Raveis Mortgage, told Mortgage Professional America the Bureau of Labor Statistics is a sign the Fed’s rate increases – nine consecutive hikes over the last few months – are having their desired effect. But she was quick to disabuse the notion that inflation is now fully tamed.
“The print rate on CPI showed that CPI was like .1% and the rate of inflation dropped to 5%, but that the core rate was up four tenths of a percent, which still shows that inflation is still stubborn,” she said. And yet, the economic report bodes well for mortgage rates, she added. “The initial reaction in the markets for the first hour was the markets cheered and the bond yield dropped nicely – I think they were down at one point to 3.36%.”
The price on bonds and mortgage rates have an inverse relationship with one another – when bonds are pricier, mortgage rates are generally lower. It’s true in the reverse as well: When bonds are less expensive, mortgage rates are higher. Cohn said bond yields rose slightly as the implications of the CPI report became clearer.
“And then as people thought about it more and realized the number, while it’s better, is not weak enough to prevent the Fed from raising rates again next month, the market turned and bond yields for a period of time were actually slightly higher – they were up like 3.44% and the market is settling back down to 3.41%,” she said during a telephone interview on Wednesday afternoon.
The upshot: “It’s quite likely the Fed will raise rates by a quarter point in May,” Cohn said. “Maybe it will be the tenth consecutive rate hike in May that will do the trick! Hopefully, the Fed will pause rates starting in June, and there will be no more rates hikes. And if bond yields stay down at this level, then mortgage rates will continue to come down. And lower rates is good news for the real estate market.”