Mortgage Rates Down on Weak Inflation Data and Fed Speculation

The prime 30-year fixed mortgage rate quoted on Zillow fell last Friday by about 5 basis points to 3.66 percent on a combination of weak inflation data and growing speculation over who will be nominated as the next Chair of the Federal Reserve Board. The drop erased much of the increase in rates reported the previous week and took rates to their lowest levels of the month.

Rates recovered during the first half of this week, rising to 3.69 percent by Tuesday. They remain below their recent highs reported during the first week of October, but that week aside, they are near their highest levels since early August.

Although Consumer Price Index (CPI) data – one of two key government-reported measures of inflation – came in below expectations, some of the weakness was attributed to the lingering effects from two hurricanes that hit the southeast United States in late August and early September.

That said, there are reasons to believe that some of the inflation headwinds are not just transitory effects – notably the slowdown in auto price inflation and shelter (housing) costs. Although auto prices are expected to be given a temporary boost as the Southeast recovers, over the longer term, aggressive sales and increased production capacity in recent years may weigh on prices. The CPI also reported a slowdown in shelter costs, which was driven primarily by slowing rent growth nationwide.