HousingWireHousingWire
Wednesday’s inflation report offers mixed news for those in housing. On one hand, housing markets across the country that have faced persistently high home prices may be getting a break. But for those hoping the Federal Reserve will continue cutting interest rates, it’s not so rosy.
That’s because December’s Consumer Price Index report from the U.S. The Bureau of Labor Statistics (BLS) registered a 2.9% year-over-year rise and a 0.3% rise compared to November. That higher pace will reinforce the Federal Reserve’s inclination to make fewer interest rate cuts this year.
Better news is that core inflation — inflation outside of volatile food and energy costs — increased 0.2% relative to last month, which is a slower pace than the 0.3% month-over-month rises experienced over the last four months.
And most important for the housing industry, shelter costs rose by 4.6%, which is the slowest pace of housing cost increases in three years. For context, it peaked at 8.2% in March 2023.
“The conquering of inflation will be a key factor in bringing down the mortgage rates, which so far have refused to budge even as the Federal Reserve has been cutting other interest rates,” said National Association of Realtors Chief Economist Lawrence Yun in a statement.
“Various non-official private sector data are pointing towards no growth in apartment rent due to the vast oversupply of new empty units hitting the market. Mortgage rates will move slightly lower – perhaps to 6.5% just in time for the spring home-buying season.”
Another headwind facing proponents of interest rate cuts is that the labor market appears to be getting stronger, and the Fed wants to see it weaken before juicing the broader economy with lower rates.
The most recent jobs report from the BLS showed 256,000 additional in December, and the unemployment rate finished the year at 4.1%, which is down compared to November but up relative to the beginning of 2024.
Despite the generally positive news from the December inflation report, the outlook for inflation in 2025 is cloudy thanks to president-elect Donald Trump, who assumes office on Monday. During the campaign, he regularly said he would impose dramatic tariffs on all foreign goods, with threats particularly targeted at China, Mexico and Canada.
Economists believe that the scale of tariffs Trump proposed during the campaign would be a recipe for reigniting inflation.
The good news for tariff opponents is that there are reports that Trump’s economic advisors are evaluating considerably lower tariffs than what was proposed, and they’re considering a gradual increasing of tariffs rates, as opposed to immediately dropping a 20% tariff on all foreign goods.
But elected officials often say one thing during the campaign and do another thing when they get in office, so it remains to be seen how serious Trump is about policies that would affect inflation, interest rates and the housing market.
