Weekly Mortgage Market Update – Cooling Inflation Offers Hope, But Rate Relief Remains Elusive

Mortgage rates held steady this week after a flurry of new economic data provided mixed signals on inflation, consumer sentiment, and overall market health. While the bond market welcomed signs of easing price pressures, persistent job market strength and high long-term inflation expectations continue to limit hopes for any near-term rate cuts from the Federal Reserve. For Raleigh-area homebuyers, that means today’s elevated mortgage rates—while stable—aren’t likely to drop significantly in the short term without a clear shift in economic direction.

📉 Bond Market Stabilizes on Cooling Inflation Data

The most influential report of the week came on Wednesday when May’s Consumer Price Index (CPI) was released. Both the headline and core CPI numbers came in below expectations, with monthly inflation rising just 0.1%—the smallest increase since October 2023. On an annual basis, core CPI (which excludes food and energy) slowed to 2.8%, down from 2.9% last month. Headline inflation ticked down to 2.4% year-over-year.

These numbers suggest that inflation is beginning to trend more meaningfully toward the Fed’s 2% target, especially if the current pace continues into the summer. In response, mortgage-backed securities (MBS) showed modest gains midweek, helping to prevent rates from rising further after last week’s volatility.

💼 Mortgage Applications Rebound as Buyers Adjust to Rate Reality

According to the Mortgage Bankers Association (MBA), both purchase and refinance activity saw an uptick this week. The MBA Purchase Index rose 10.3%, while refinancing applications jumped by over 15%. This signals a shift in consumer behavior, as buyers and homeowners begin to adapt to a “new normal” for mortgage rates near or above 7%. The recent stability in bond yields may have given hesitant borrowers a window of opportunity to move forward before the next market shake-up.

📊 Other Economic Reports Show Resilience, Not Recession

While inflation data was encouraging, other reports painted a picture of an economy that is still running warm:

• Producer Price Index (PPI): Like CPI, the PPI also showed softening inflation. Core producer prices rose just 0.1% in May, and headline PPI rose at the same pace. However, annual PPI inflation still stands at 3%, which may concern the Fed if it doesn’t continue to trend down.

• Jobless Claims: Initial unemployment claims ticked up slightly to 248,000, but remain historically low. Continued claims rose to 1.956 million, indicating only a modest softening in the labor market.

• Consumer Sentiment: The University of Michigan’s Consumer Sentiment Index showed a noticeable improvement, climbing to 60.5 from 53.5. This optimism was somewhat tempered by long-term inflation expectations, which came in at 4.1%—still above the Fed’s comfort zone.

• NFIB Small Business Optimism Index: Small business sentiment rose to 98.8, the highest level in over a year, suggesting that businesses are feeling cautiously confident despite persistent inflation and political uncertainty.

🧾 Federal Budget Deficit and Treasury Auctions Keep Pressure on Rates

Another factor weighing on the bond market this week was the release of the federal budget data for May, which showed a deficit of $316 billion. Concerns about rising government debt continue to pressure bond yields higher, especially as new Treasury debt floods the market to finance federal spending.

This dynamic was on full display during this week’s Treasury auctions. A lackluster 30-year bond auction on Thursday saw weak investor demand and yields ticking higher to 4.844%, suggesting that bond investors are still seeking a higher return in exchange for long-term U.S. debt exposure. For mortgage rates, which tend to move in tandem with long-term Treasury yields, this puts a ceiling on how far rates can fall—at least in the near term.

📍 What It Means for Raleigh Homebuyers

For buyers in Raleigh, this week’s developments offer cautious optimism but little immediate relief. Mortgage rates remain in the low 7% range—a far cry from the highs of over 8% in late 2023, but still elevated compared to historical norms. That said, softening inflation data may indicate that the worst is behind us, and any sustained improvement over the summer could open the door for modest rate drops later in the year.

Financially ready buyers should consider acting sooner rather than later. The current stability in rates offers a potential window of opportunity, especially if upcoming economic reports or geopolitical developments introduce new volatility. Locking in a rate now could help protect against unexpected increases, particularly if the bond market remains sensitive to budget debates and global trade news.

🔮 Looking Ahead: More Clarity or More Confusion?

Next week, the market will turn its attention to the Federal Reserve’s June policy meeting and updated projections. While no rate cut is expected, investors will be watching closely for changes in the Fed’s tone and economic forecasts. Additional housing data—including building permits and housing starts—will also give insight into how the real estate sector is holding up under persistent rate pressure.

At Certified Home Loans, we continually monitor the ever-changing mortgage landscape, enabling our Raleigh-area clients to make informed purchase and refinance mortgage decisions. Whether you’re a first-time buyer, move-up homeowner, or investor, we’re here to guide you through every market movement with expert insight and personal service.