Weekly Mortgage Market Update: Rates Improve as Inflation Eases and Bond Markets Rally
Mortgage-backed securities rallied this week even as headline economic data suggested rates should have moved higher. The bond market absorbed stronger job creation and steady inflation, yet yields fell, and mortgage pricing improved. By week’s end, mortgage rates hovered near some of the most favorable levels seen since late 2022.
This type of divergence between economic headlines and mortgage pricing highlights an important truth. Markets respond to the full picture, not one report at a time. Mortgage-backed securities reacted to slowing consumer demand, moderating inflation, and shifting investor sentiment across global markets.
Retail Sales and Inflation Expectations Set the Early Tone
The week began with softer consumer data that supported mortgage bonds. Retail sales for December came in flat, far below expectations for growth. The control group, which feeds directly into GDP calculations, declined 0.1 percent. Weak consumer spending suggests slower economic momentum, which typically benefits bonds and helps mortgage rates improve.
Consumer inflation expectations also declined to 3.1 percent from 3.4 percent. Lower inflation expectations reduce pressure on long-term yields because investors anticipate less aggressive monetary policy over time. Mortgage-backed securities responded positively to this combination of weaker spending and cooling inflation expectations.
Employment cost data reinforced that theme. Fourth-quarter employment costs rose 0.7 percent, slightly below expectations. Slower wage growth helps ease inflation pressure, which supports long-duration assets like mortgage bonds.
Strong Jobs Report Failed to Push Rates Higher
The week’s most important data arrived midweek with the January employment report. Nonfarm payrolls rose by 130,000, well above expectations for 70,000. Under normal circumstances, stronger job creation would push Treasury yields higher and pressure mortgage-backed securities.
That initial reaction occurred briefly. Yields rose, and mortgage pricing worsened immediately following the release. Within hours, however, bond markets reversed course. By the end of the week, mortgage-backed securities had recovered and improved.
Several factors explain the resilience. First, broader labor market trends continue to show a gradual cooling despite stronger headline job growth. Jobless claims rose to 227,000 and remain higher than late-2025 lows. Second, the composition of job gains matters. Markets appear focused on whether hiring strength can persist or if certain sectors temporarily boosted payrolls.
Investors ultimately viewed the jobs report as solid but not strong enough to derail the broader trend of moderating inflation and slower growth.
CPI Data Reinforced Disinflation Trend
Friday’s Consumer Price Index report provided the clearest support for mortgage-backed securities. Headline CPI rose 0.2 percent month over month, below expectations. Year-over-year headline inflation fell to 2.4 percent from 2.7 percent. Core CPI held steady with expectations but showed continued gradual progress.
Inflation remains the single most important driver of long-term interest rates. When inflation moves closer to the Federal Reserve’s target, investors are more willing to buy longer-term bonds. That demand pushes yields lower and improves mortgage pricing.
Mortgage-backed securities rallied following the CPI release, helping mortgage rates finish the week near recent lows.
Housing Data and Jobless Claims Add Context
Additional reports offered mixed but generally supportive signals for bonds. Existing home sales declined to 3.91 million units, below expectations. Slower housing activity reflects affordability challenges and higher borrowing costs, both of which help reduce inflation pressure over time.
Jobless claims came in slightly above expectations earlier in the week, then eased again. Continued claims remain elevated compared with mid-2025 levels. These trends point to a labor market that is stable but gradually softening.
For mortgage-backed securities, this combination is favorable. A cooling housing market and steady rise in claims suggest less inflation pressure without signaling an abrupt economic downturn.
Why Mortgage-Backed Securities Improved This Week
Several forces combined to support mortgage pricing despite strong headline job growth.
- Weak retail sales reduced expectations for aggressive consumer spending.
- Cooling inflation expectations improved demand for bonds.
- Employment cost growth slowed, easing wage pressure.
- CPI confirmed continued progress toward lower inflation.
- Equity market volatility increased demand for safer assets.
Together, these factors allowed mortgage-backed securities to rally even when individual reports suggested higher rates. Mortgage rates ended the week near multi-year lows as bond markets focused on the broader disinflation trend.
What Could Move Mortgage Rates Next Week
Next week’s calendar features several housing and inflation-related reports that may influence mortgage-backed securities and mortgage rates.
Housing market indicators will be closely watched. Builder sentiment, housing starts, and new home sales will help determine whether demand is stabilizing or slowing further. Weak housing data typically supports mortgage bonds.
Durable goods and industrial production will provide insight into business investment and manufacturing activity. Strong readings could pressure rates higher by reinforcing economic resilience.
The Federal Reserve’s meeting minutes will offer additional context on policy direction. Markets will look for any shifts in tone regarding inflation or labor market concerns.
Friday’s GDP and Personal Consumption Expenditures data will be the most influential. GDP measures overall economic growth, while PCE is the Fed’s preferred inflation gauge. Strong growth and higher inflation would pressure mortgage rates. Softer readings would likely support further improvement.
What This Means for Borrowers Across North Carolina
Mortgage rates remain sensitive to each new data release, but the broader trend has improved compared with late-2024 conditions. Rates are holding near their best levels in years despite ongoing volatility in economic data.
For homebuyers and homeowners across Raleigh, Cary, Apex, Durham, and the Triangle, this environment creates opportunity. Small changes in inflation and employment data can quickly influence mortgage pricing. Staying informed and working with a knowledgeable mortgage partner helps you respond strategically.
Certified Home Loans monitors mortgage-backed securities and economic trends daily to guide clients through changing lending conditions. Whether you are considering a purchase or refinance, understanding how market data drives mortgage rates helps you make confident decisions in today’s market.
