Lower Rates, Softer Inflation, and Mixed Economic Signals
Each week we provide a high-level view of mortgage rate activity and the economic data influencing the housing market.
Rate change since Monday, Feb 9:
➡️ 30-year fixed mortgage rates improved slightly — about 0.125% lower week-over-week
While that’s encouraging for buyers, the reason behind it matters. The latest data shows an economy sending mixed signals: strong on the surface, but softer underneath.
The Labor Market: Strong Headlines, Weak Details
January’s jobs report looked impressive at first glance — but the deeper data tells a different story.
What looked strong
- 130,000 jobs added (vs 55,000 expected)
- Unemployment rate dipped to 4.3%
What actually matters
- ADP private payrolls: only +22,000
- Revelio data: –13,300 jobs
- Job openings fell to 6.54 million
- January job cuts: highest level since 2009
- Hiring announcements: lowest in 17 years
- Prior months revised down by 17,000
- 2025 job growth revised down to just 181,000 total (≈15k/month)
Perhaps most important:
Before seasonal adjustments, payrolls actually fell by 2.65 million — adjustments turned that decline into a reported gain.
Takeaway: The labor market is cooling more than the headline suggests — and cooling labor markets tend to help mortgage rates.
Inflation Update: Moving in the Right Direction
Inflation continues to gradually ease.
- CPI rose 0.2% in January
- Annual inflation dropped to 2.4% (8-month low)
- Core inflation: 2.5% year-over-year
Shelter costs remain the largest contributor, though January’s increase was modest. Airline fares were one of the few categories that jumped sharply.
The Federal Reserve held rates steady after three cuts late last year and remains cautious — balancing improving inflation against economic weakness.
Takeaway: Inflation is improving, but not enough yet for the Fed to declare victory.
Housing Market: Sales Down, Affordability Improving
Housing activity slowed, but not for negative reasons alone.
- Existing home sales fell 8.4% month-over-month
- Down 4.4% year-over-year (NAR)
- Inventory: 1.22M homes (still higher than last year)
- Affordability: best level since March 2022
Weather likely played a role in weaker sales in many parts of the country.
Takeaway: Demand is still there — buyers are just sensitive to rates and conditions.
Consumer Spending & Jobless Claims
Consumer behavior is showing caution:
- Retail sales: flat
- Most spending categories declined
- Initial jobless claims: 227,000
- Continuing claims rising to 1.862M (longer job searches)
Takeaway: Consumers are slowing spending — another signal the economy is cooling.
What It Means for Mortgage Rates
Markets currently see:
- Cooling labor market ✔️
- Improving inflation ✔️
- Slowing spending ✔️
All three tend to push mortgage rates lower — which explains last week’s improvement.
However, the Fed still sees inflation as “sticky,” so major rate drops will likely depend on continued economic softening.
Looking Ahead
Several delayed reports release this week and could move markets significantly:
- Fourth-quarter GDP
- December PCE inflation
- Federal Reserve meeting minutes
- Multiple housing indicators
These reports will shape expectations for future rate cuts and mortgage trends.
Bottom line:
The economy isn’t collapsing — but it is clearly slowing. That environment historically supports gradually improving mortgage rates, even if volatility continues week to week.
We’ll continue monitoring the data and keeping you updated.
