Mixed Economic Data: What It Means for Mortgage Rates and Real Estate

This week brought a set of surprising economic reports, but in opposite directions. Inflation came in significantly higher than expected, while consumer spending slowed more than anticipated. These offsetting results left mortgage rates relatively unchanged by the end of the week.

Inflation Surprises to the Upside

The Consumer Price Index remains one of the most important monthly indicators for inflation. In January, core Consumer Price Index, which excludes food and energy to reduce short term volatility, was 3.3 percent higher than one year ago. This was above expectations and marked the highest annual rate since May 2024. For real estate, stronger than expected inflation adds pressure to mortgage rates, which can reduce affordability for buyers. Sellers may need to remain flexible as rate fluctuations influence buyer behavior and borrowing capacity.

Shelter Costs Continue to Drive Inflation

Although inflation has fallen significantly from its peak of 6.6 percent in September 2022, the current level remains well above the Federal Reserve’s target of 2.0 percent. Rising housing costs remain one of the biggest contributors to elevated inflation, along with notable price increases in used cars, auto insurance, and hospital services. For buyers, rising shelter costs reinforce the appeal of locking in a mortgage and stabilizing monthly payments through homeownership. Sellers may continue to benefit from strong pricing, but they should be mindful of how affordability pressures could limit the buyer pool.

Producer Prices Hold Steady with Expectations

The core Producer Price Index, which tracks wholesale prices, rose 0.3 percent from December and was 3.6 percent higher than a year ago. This was mostly in line with forecasts and marks the highest annual reading since February 2023. Investors tend to place less weight on Producer Price Index compared to Consumer Price Index, as it reflects a smaller portion of the overall economy. For real estate, stable wholesale pricing helps control construction and renovation costs, which can be beneficial for builders and homeowners planning improvements. Buyers may see less upward pressure on new home prices if material costs remain in check.

Consumer Spending Drops Sharply

In a surprising turn, consumer spending slowed dramatically in January. Retail sales fell 0.9 percent from December, far below the small decline that was expected. The slowdown may have been influenced by bad weather and California wildfires. Weakness was most evident in auto sales, online shopping, and sporting goods. For the housing market, reduced consumer spending could indicate growing caution among buyers. However, lower spending may also ease inflation in future months, which would support mortgage rate stability or even future declines. Sellers should watch for shifts in buyer confidence as the economic outlook evolves.

What This Means for Real Estate

This week’s data highlights the continued tug of war between inflation and economic growth. For buyers, stable mortgage rates paired with signs of economic softening could present an opportunity to make a move before rates rise again. For sellers, pricing strategy and timing will remain important as affordability challenges and buyer sentiment fluctuate.

Keeping up with changing economic conditions will help you make smart, timely decisions in today’s real estate market. Whether buying or selling, staying informed is the best way to move forward with confidence.