Inflation Has Cooled. But Progress Has Stalled.

We got another inflation report this week, and at first glance it would be easy to call it good news.

I am not sure I would.

Inflation is certainly not as bad as it was earlier this year. But the latest numbers do not show much additional improvement either.

The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures price index, was up 3.4% from a year ago in August.

That was exactly where it was in July.

Core PCE, which removes food and energy, was 3.0% year over year in August. It was also 3.0% in July and 3.0% in June. Bureau of Economic Analysis

So the inflation story is not really that inflation suddenly got better.

A more accurate description is:

Inflation has cooled from where it was earlier this year, but lately the progress has stalled.

And Month to Month, Inflation Actually Picked Up

There is another part of the report worth paying attention to.

The overall PCE price index increased 0.3% in August, compared with 0.1% in July.

Core PCE increased 0.2%, compared with 0.1% in July.

Consumer spending also increased 0.9%, while personal income increased only 0.2%. The personal saving rate was 4.1%. Bureau of Economic Analysis

One month does not tell us where the economy is headed.

But that is a more complicated picture than simply saying inflation is getting better.

Then We Got Friday’s Jobs Report

Friday morning gave us another example of why one economic report does not control mortgage rates.

The September employment report showed the economy adding just 29,000 jobs, while the unemployment rate was 4.2%.

July and August payroll growth were also revised down by a combined 60,000 jobs. Bureau of Labor Statistics

That is certainly evidence of a cooling labor market.

You might expect weaker employment data to automatically mean lower mortgage rates.

Again, not necessarily.

Mortgage News Daily’s daily 30-year fixed index initially benefited from the employment report Friday morning, but the improvement did not hold. The index finished October 2 at 7.57%, slightly higher than Thursday’s 7.54%. Mortgage News Daily

That gives us two examples in the same week.

Inflation was not getting materially worse.

Employment growth was weak.

And mortgage pricing remained elevated.

That is not a contradiction.

It is how markets work.

One Economic Report Does Not Set Your Mortgage Rate

I think consumers are sometimes trained to think there is one switch somewhere that determines mortgage rates.

Inflation improves, mortgage rates fall.

The Federal Reserve changes rates, mortgages change the same amount.

The jobs report is weak, mortgage rates immediately drop.

It is much more complicated than that.

Mortgage pricing reflects inflation expectations, economic growth, the bond market, mortgage-backed securities, investor demand, risk and what investors believe all of those things may look like months from now.

One report matters.

It simply does not operate by itself.

What Mortgage Pricing Looked Like This Week

The Mortgage Bankers Association’s September 30 survey, covering applications through September 25, reported an average conforming 30-year contract rate of 7.30% with 0.75 points at 80% loan-to-value.

MBA also reported:

• Total mortgage applications down 6%
• Purchase applications down 4%
• Refinance applications down 9%
• Adjustable-rate mortgages accounting for 10.3% of applications MBA

Mortgage News Daily’s separate daily index finished Friday at 7.57%. Mortgage News Daily

Those are different measurements with different methodologies.

Neither should be treated as an individual borrower quote.

They are useful for telling us what is happening in the broader mortgage market.

Borrowers Are Adjusting

I would not take one week of mortgage application data and call it a trend.

But borrowers do what they have always done when conditions change.

They adjust.

They compare financing structures.

They reconsider how much they want to put down.

They look at the payment.

They evaluate whether the transaction still accomplishes what they are trying to do.

That is exactly what they should be doing.

There Is a Market Rate, and Then There Is Your Transaction

There is not one mortgage rate that applies to everybody.

Your financing depends on your credit profile, down payment, occupancy, property type, loan program, points and how the entire transaction is structured.

That is why I think the mortgage conversation gets off track when it begins and ends with:

“What’s the rate?”

The better starting question is:

“What monthly housing payment comfortably works for me?”

Then we can work backward.

What purchase price works?

How much should you put down?

What do the property taxes look like?

What does homeowners insurance cost?

Is there an HOA or condominium fee?

Which financing structure best fits what you are trying to accomplish?

That is a much more useful conversation.

South Florida Makes That Even More Important

Here in South Florida, the mortgage rate is only one component of affordability.

The latest verified August housing data also show that conditions vary considerably by county, property type and price range.

Statewide, Florida single-family inventory declined 13% from a year earlier, while condo and townhouse inventory declined 11.5%. Bureau of Economic Analysis

And throughout South Florida, the balance between single-family homes, condominiums and luxury properties can be very different.

That means two buyers shopping only a few miles apart may be operating in completely different negotiating environments.

Preparation Matters More Than Prediction

If you are thinking about buying or refinancing, I would spend less energy trying to predict the next inflation report, jobs report or Federal Reserve announcement.

Instead, understand your own numbers.

What payment works for you?

What do you qualify for?

How much cash do you want to put into the transaction?

What happens if mortgage pricing improves?

What happens if it gets worse?

What alternatives are available?

And what does the total cost of the particular property look like?

Those are things we can actually evaluate.

Smart Buyer Insight

Inflation being lower than it was several months ago is encouraging.

A cooling labor market is important too.

But neither one automatically translates into a lower mortgage rate the next morning.

This week’s lesson is pretty simple:

The economy can be slowing in some areas while inflation remains stubborn and mortgage rates remain elevated.

That is why I would not make a housing decision based on one headline.

Bottom Line

Inflation is not as bad as it was earlier this year.

But the August numbers show that progress has stalled.

Then Friday’s employment report showed very weak job growth and downward revisions to previous months.

Mortgage pricing still remained elevated.

None of that tells us exactly where rates go next.

So do not build your housing strategy around trying to predict every economic report.

Understand your payment.

Understand your financing choices.

Understand the property.

And understand the complete transaction.

Preparation beats prediction.

Rate is one component.

The transaction is the decision.

About the Author

Clay Edmonds is the Corporate Educator and Complete Mortgage Advisor at Complete Mortgage LLC in Hollywood, Florida, and the creator of MortgageSimplified.net. Clay focuses on simplifying the mortgage process and helping borrowers and real estate professionals better understand their financing options and make informed real estate financing decisions.