10
Loading video...
By Giulia Carbonaro
Senior Reporter
0
Share
Newsweek is a Trust Project member
See more of our trusted coverage when you search.Prefer Newsweek on Googleto see more of our trusted coverage when you search.
Inflation fell to 3.4 percent in July as the consumer price index (CPI) increased by a modest 0.1 percent, according to the latest data from the Bureau of Labor Statistics (BLS), alleviating fears of an immediate rate hike from the Federal Reserve.
This is reassuring news for the U.S. economy and the housing market, Zillow’s chief economist Mischa Fisher told Newsweek.
"When inflation rises, interest rates follow, and that means higher mortgage rates and fewer home sales," she said. "Inflation hasn’t climbed further, and that’s a meaningful sign."
Read More on News
But the country is still "a ways off" from the central bank’s target rate, even as the risk of mortgage rates moving higher has come down, she added.
...
Inflation "contagion fears" are "still looming," Jake Krimmel, senior economist at Realtor.com, told Newsweek. And for Americans still facing higher prices and stubbornly elevated borrowing costs, the latest figures are but a small comfort.
A modest increase in food prices may add only a few dollars to a weekly shopping bill, while even a small increase in mortgage rates can add hundreds of dollars to a monthly housing payment and significantly reduce purchasing power.
That is on top of housing accounting for the single-largest expense for U.S. households, representing 33.4 percent of total average consumer expenditures in 2024, according to BLS data. By comparison, food accounted for 12.9 percent of a household’s expenses.
What Does the Latest Data Mean for Americans’ Mortgages?
For Krimmel, the latest CPI showed inflation "heading in the right direction, but not far enough to move markets or the Fed’s outlook."
That means the Federal Reserve is expected to keep rates elevated in the coming months, although most observers predict another pause in September after a weaker-than-expected jobs report released this month.
A one percentage point increase in mortgage rates can add hundreds of dollars to the monthly payment on a median-priced home and reduce buyers’ purchasing power by tens of thousands of dollars, making inflation’s impact on borrowing costs more significant than its effect on most day-to-day consumer purchases.
While the central bank does not directly set mortgage rates, both 15- and 30-year fixed rates follow the lead of long-term Treasury yields, which respond to the Federal Reserve’s decisions on its key rate.
Any further increase in mortgage rates would exacerbate the ongoing affordability crisis faced by homebuyers. While a majority of experts expected mortgage rates to fall just below 6 percent by the end of the year, the average 30-year fixed rate hit 6.69 percent last week, after rising following the start of the war in Iran.
"Rates are now higher than a year earlier for the first time since October 2025, which means we are not set up for the kind of September sales surge we saw in 2025," Krimmel said.
"For the housing market, it does not matter if PCE [Personal Consumption Expenditures, which measures consumers’ spending habits] or CPI agree. The bottom line is that consumers are still facing elevated inflation, higher mortgage rates, and falling real earnings, which slipped 0.1 percent in July," Krimmel said.
"Together, this is a rough combination for affordability and housing demand heading into fall, a time when buyers can often get the best deals too."
Even Americans who already own homes are not insulated from inflation. Higher rates can affect home-equity loans, refinancing opportunities and broader housing-market activity. Elevated borrowing costs have also helped keep existing-home inventory constrained as many owners remain reluctant to give up mortgages secured at historically low rates.
What Will Happen Next?
Talks of a peace deal with Iran "would be a welcome development for the inflation and mortgage rate outlook in the coming months, though that depends on the Strait of Hormuz reopening as well," Krimmel said.
"The good news is that, despite some bumps along the way, this has not been another ‘cruel summer,’" he added.
"Sellers have read the market signals better this year and adjusted pricing accordingly, which has kept sales activity up year over year even as that momentum faded in July."
When and whether the Federal Reserve will hike its interest rates will depend on what direction inflation will move in next.
"Two things to watch for next month’s numbers are gas prices and core goods," Krimmel said. "July’s headline CPI improvement was helped by an early-month decline in gas prices that has since reversed, a development that will matter more for consumers and politicians than Fed policymakers or financial markets."
Contact Newsweek editors on this story: Ben Kelly and Tony Phillips.
View 0 Comments
Submit Correction
View Editorial & AI Guidelines