Housing costs drive uptick in core inflation; Fed remains cautious

This week, core inflation experienced a slight increase, primarily driven by housing costs. This development highlights the Federal Reserve's need to remain vigilant as it approaches its decision on a potential rate cut next month.

Earlier in the week, updated consumer price data revealed a modest rise to 2.6% in October, with core inflation particularly affected. Producer prices exhibited similar trends, with housing costs playing a significant role and accounting for half of the overall increase.

The Federal Reserve will consider additional inflation readings and job market indicators before its December meeting and decision. However, the October inflation data emphasizes the importance of vigilance and indicates that the next decision is not predetermined.

Fed Chair Jerome Powell stated this week, "The economy is not sending any signals that we need to be in a hurry to lower rates."

Since early November, 10-year Treasury yields have remained within the 4.3% to 4.5% range, maintaining relative steadiness this week. Mortgage rates reflect this stability, dropping just one basis point this week to 6.78%. However, rates have increased by 70 basis points from their September lows, creating challenges for homebuyers and sellers.

Mortgage applications rose slightly during the week and were just 1% above their level from a year ago. Both FHA and VA loans experienced stronger growth, increasing their share of total applications.

In recognition of Veterans Day earlier this week, Realtor.com® conducted an analysis of VA loans and found that they offer significant advantages in today's housing market. These loans provide eligible buyers with zero down payments and flexible credit terms.

From an inventory perspective, weekly housing data from Realtor.com shows that homes for sale continued to rise along with an increasing number of new sellers compared to last year; however, momentum was somewhat weaker.

Home prices remained essentially flat, and homes took slightly longer to sell compared to a year ago.