Weekly Mortgage Market Update: Core PCE & Inflation Drive Mortgage Rates
Mortgage-backed securities faced renewed pressure this week as hotter inflation data and stronger regional manufacturing readings pushed Treasury yields higher. After holding near multi-year lows last week, mortgage rates drifted modestly higher as investors reassessed inflation risks and economic momentum.
The week was shortened by the Presidents Day holiday, but the data that followed carried weight. Inflation and growth numbers drove most of the bond market movement, and mortgage pricing responded accordingly.
Housing and Manufacturing Data Sent Mixed Signals
Early-week reports showed continued resilience in parts of the economy.
The New York Fed Manufacturing Index came in slightly above expectations. Housing starts rose to 1.404 million, beating forecasts, and building permits also exceeded estimates. Industrial production increased 0.7 percent, well above expectations.
Stronger production and housing activity suggest economic stability. When growth remains firm, investors often demand higher yields on long-term bonds. That dynamic pressured mortgage-backed securities midweek.
At the same time, durable goods orders declined 1.4 percent. While that headline was negative, core capital expenditures rose 0.6 percent. Business investment remains steady, limiting the downside for growth expectations.
Mortgage application data showed refinancing activity climbing while purchase demand softened slightly. That reflects borrower sensitivity to small rate movements, especially after recent lows.
Labor Market and Regional Data Support Growth
Thursday’s jobless claims fell to 206,000, below expectations and lower than the prior week. Fewer claims signal continued labor market strength. Strong employment conditions can keep wage pressures elevated, which influences inflation expectations and long-term rates.
The Philadelphia Fed Business Index jumped to 16.3, nearly double expectations. Even though the prices paid component eased, overall business activity showed expansion. That supported higher Treasury yields and added pressure to mortgage bonds.
Pending home sales declined 0.8 percent. Housing demand remains uneven as affordability challenges persist. While softer housing data can help rates, it was not strong enough to offset inflation concerns later in the week.
PCE and GDP Shift the Inflation Narrative
Friday delivered the most important reports of the week. Personal Consumption Expenditures data showed inflation running hotter than expected.
Core PCE rose 0.4 percent month over month, above forecasts. Year-over-year core PCE reached 3 percent. Headline PCE also exceeded estimates. Since PCE is the Federal Reserve’s preferred inflation gauge, these readings matter directly for rate expectations.
At the same time, fourth-quarter GDP slowed sharply to 1.4 percent, well below expectations and far weaker than the prior quarter’s 4.4 percent pace. Final sales also cooled significantly.
This created a challenging mix for bond markets. Growth is slowing, which supports lower rates. Inflation remains elevated, which pressures rates higher. Mortgage-backed securities traded cautiously as investors weighed these competing forces.
By week’s end, mortgage rates moved modestly higher from last week’s lows but remained well below late-2024 levels.
Why Mortgage-Backed Securities Struggled
Several forces shaped trading this week:
- Stronger housing starts and industrial production reinforced economic resilience.
- Jobless claims fell, confirming a firm labor market.
- Regional manufacturing expanded more than expected.
- Core PCE inflation ran hotter than forecasts.
- GDP growth slowed, adding uncertainty to the outlook.
Inflation ultimately carried more weight than growth concerns. When inflation accelerates, investors demand higher compensation to hold long-term bonds. That translates directly into pressure on mortgage-backed securities and slightly higher mortgage rates.
What Could Move Mortgage Rates Next Week
The coming week brings a full slate of housing, consumer, and inflation-related data that could influence mortgage-backed securities.
- Factory orders will provide insight into manufacturing demand.
- Home price data from Case-Shiller and FHFA will show whether appreciation remains firm.
- Consumer confidence readings will reflect spending sentiment.
- Treasury auctions across multiple maturities may influence long-term yields.
- Jobless claims will offer an updated view of labor market strength.
- Producer Price Index on Friday will be the key inflation report.
If PPI comes in cooler than expected, mortgage-backed securities could recover and help rates stabilize. Stronger producer inflation would reinforce this week’s upward pressure on mortgage pricing.
What This Means for North Carolina Borrowers
Mortgage rates remain sensitive to each new inflation report. While rates are no longer at last week’s lows, they remain significantly improved compared to levels seen in late 2024.
For buyers and homeowners across Raleigh, Cary, Apex, Durham, Wake Forest, and surrounding North Carolina communities, this environment rewards preparation and strategy. Inflation data now carries outsized influence on mortgage pricing.
Certified Home Loans monitors bond market movement and economic releases daily. Whether you are planning to purchase or refinance, understanding how inflation, growth, and labor data drive mortgage-backed securities helps you make informed decisions in a changing rate environment.
