Why Good Inflation News Isn’t Lowering Your Mortgage

Mortgage rates surged this week, with FHA loans seeing the biggest jump—and yes, even ARMs moved higher despite no Fed rate hike. So what gives? In this episode of Mortgage, Markets, and More, Peter DeAngelo breaks down the surprising reasons behind the rate spike, from sticky shelter inflation to investor anxiety over future tariffs and a cautious Fed. 📈💸

We also take a deep dive into bond yields, market sentiment, and why even “cooling” inflation isn’t enough to ease interest rate pressure just yet. 

#MortgageRates #RealEstateMarket #Inflation2025 #BondYields #FedWatch #HomeBuyingTips #NewJerseyRealEstate #Tariffs #EconomicOutlook #HousingMarketTrends

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Peter D'Angelo | NMLS: 885309 | Branch Manager | Guaranteed Rate, Inc., NMLS 2611
Peter.DAngelo@Rate.com

*All information, topics, discussion is my own personal opinion and insight, not reflective of Guaranteed Rate, Inc. May contain market information for informational purposes only, not to be used as financial advice.

Transcript

Let’s start with where rates stand this week (via Mortgage News Daily):

• 30-Year Fixed: 6.99% (↑ from 6.86%)
• 15-Year Fixed: 6.34% (↑ from 6.19%)
• 30-Year Jumbo: 7.10% (↑ from 7.00%)
• 30-Year FHA: 6.44% (↑ from 6.25%)
• 7/6 SOFR ARM: 6.63% (↑ from 6.45%)

Rates moved up across the board by roughly 10–20 basis points. The biggest jump? The FHA loan, up 19 bps. Even ARMs ticked up despite no immediate Fed rate hike.

2. Bond Market Update

Treasury yields followed suit, which is a big clue to what’s driving mortgage rates:

• 10-Year Treasury: 4.507% (↑ from 4.318%)
• 5-Year Treasury: 4.135% (↑ from 3.918%)
• 2-Year Treasury: 4.028% (↑ from 3.83%)

This week’s bond market action points to investors adjusting expectations—less about “what just happened” and more about “what might happen next.”

3. The Why Behind the Rates

A. Economic Indicators: Inflation & Tariffs

Here’s the twist: Inflation actually came in cooler.

• Headline CPI slowed to 2.3% YoY, the slowest pace since early 2021.
• Core inflation stayed steady at 2.8%, right in line with expectations.
• Shelter costs—primarily housing—accounted for 70% of the monthly increase, essentially offsetting declines in energy and used car prices.

✅ Takeaway: Even with relief in some consumer categories, the housing cost burden is still driving sticky inflation.

And that’s not the whole story. Even with this encouraging CPI report:

• The tariff overhang remains a risk. Trump’s paused/reversed tariffs may still add 0.3–0.5% to inflation in 2025.

✅ Investor takeaway: Today’s good inflation news may not last, especially if housing costs stay high and tariffs resurface.

B. Market Sentiment: No Recession, No Rush to Cut

• The U.S.-China 90-day tariff pause helped reduce immediate recession fears.
• Retail sales and jobless claims also surprised to the upside recently.
• Result: Markets saw a stronger economic outlook and dialed back Fed rate cut expectations—from 3–4 cuts expected to just 2–3 in 2025.

✅ That’s key: Less urgency for the Fed to cut means higher-for-longer interest rates.

C. Fed Gridlock & Supply Overhang

• The Fed held steady at its May 7 meeting, citing mixed data and inflation risks.
• Experts say the Fed is now “stuck between fighting inflation and preventing recession.”
• Add to that: a weak 10-year Treasury auction signaled poor demand for bonds, which pressured yields higher still.

✅ Bottom line: Investors want more premium (i.e., higher yields) to hold U.S. debt right now.

5. Closing Thought

Why did mortgage rates go up after “good” inflation and tariff news?
Because markets aren’t just watching what is—they’re reacting to what might be. Even modest progress on inflation can be outweighed by concerns about future inflation risks (like tariffs), a resilient economy, and a Fed hesitant to pivot.

This week proves: sometimes, even good news isn’t good enough to bring rates down.

TRANSCRIPT:

📍  📍    Welcome back to Mortgage Markets and More. I'm your host, Peter DeAngelo from Rate. I hope you're doing well.  I don't have good news today, unfortunately.  Yes, interest rates have gone up quite a bit and we're gonna just take a look at that and some of the reason why before we move on to some more of a deep dive into what's going on in the economy and try to make sense of something that seems to be nonsensical right now.

Let's start off with our review of mortgage rates as of the recording of this podcast, the Thursday morning before its release, and these are according to mortgage News Daily, 30 year fixed rate mortgage averaging 6.99%. The 15 year fixed rate mortgages averaging 6.34%, 30 year jumbo.

7.1% 30 year FHA 6.44% and the seven six SOFR adjustable rate mortgage, 6.63%  rates have moved up across the board and  a large part of the reason why continues to be the same thing that we talk about every week.

That situation has not changed. We're talking about tariffs, headlines. We're gonna go into the details of that, but high level, it's a lot of the chaos and the uncertainty about the economic outlook.  Now looking at the bond market, this is giving us a glimpse as to where. People's heads are at with where they think interest rates are going to go.

So I like to just reiterate, we look at the interest rates as they are right now, and then the bond market gives us a glimpse of what we can expect because this shows us the mentality of the investor and what they believe is going to be monetary policy moving forward, and expectations for the market. 

Those here are the bond yields. As of this morning, 10 year treasury yield is at 4.507%. The five year is at 4.135%, and the two year is at 4.028%. We're back in an environment that was comparable to prior to the new year. This is what the bond market looked like as we were wrapping up 2024. Everything is above the 4% threshold and the 10 year bond is now pushed beyond.

That resistance level it was, it was feeling at four and a half. So now we've broken that this opens up new territory. Why did this happen?  I'm gonna give you the data first and then some of the reason why we can maybe make sense of it. First and foremost, tariffs and inflation.

We talk about it every episode throughout April and into May. Now,  the.  Conversation is still developing and there's still so much speculation as to what these tariffs and what the long-term effects are going to be. That being said, we had good news, the consumer price index, which is one of our inflation gauges, we had that report. 

Get furnished this past week. That report showed that the headline, this is taking into account the cost of many different things across many different sectors. All of them,  the price increases were at 2.3% year over year. That was slightly lower than where the expectations were from. Economy analysts.

That was 2.4. So we saw a little bit of progress inflation moving closer to 2% target the core, which removes the volatile elements like food and energy that stayed steady at 2.8%. So when the volatility's removed, there is hasn't been as much progress on inflation that remained flat year over year. 

What's important to note from this report that really stood out to me? It was the fact that shelter,  when I say shelter, that's housing. That's our world. That's what we talk about every week.  Shelter component is one third of all of the data. It gets weighted as one third of what we see  transmitted to us as a percentage increase.

So of the 2.3% year over year increase, one third of those price increases  fall in shelter.  Shelter came in with around 4% price appreciation year over year. How that gets worked out very briefly, they take a survey of rents and then what they call owner's equivalent to rent. So if you own a home, what's the equivalent to that?

There's a calculation for it, and that's how we get those numbers. Well, looking at those numbers, okay, one third of that. Shelter cost. We talk about how inflation has kept interest rates high because the Fed needs to get inflation to go down, and the only way that they can do that right now is to keep their monetary policy restrictive, which is with a high interest rate. 

If one third of this is shelter, could we be in a scenario where we're chasing our tail? Because if the rates don't improve and there's not enough improvement on prices in the other two thirds of all goods and services, right,  well then we're never going to reach 2% because this pricing component for shelter is remaining extremely sticky.

Now, I was very interested in this, so I did a quick survey and I used Perplexity to get me a summary and show me what the shelter component of CPI was. Going back for the past 12 months, what I can tell you is this, from this point, going back 12 months, there's been slight improvement 0.1% less price appreciation every month when compared to the year prior.

So  there's more volatility in the other elements, but the shelter component is showing progress, but it's very slow, but it's there. It's steady.  Next. We also have conversations about recession still developing.  That means that the fed's not gonna be any in any rush to cut, and they sit at their meeting, as we mentioned.

They're not going to make a preemptive move. They're going to let the market do what it's doing. Then they're going to react. They're going to stay dependent upon the data and make their decisions for monetary policy based upon that. As long as that's the case, we're gonna be subject to.  The headline Chaos, where one thing gets said or one piece of news hits the wire and then  chaos ensues in the market because everyone doesn't know what's going to happen next. 

All of this is speculation, so they're going to do what they can with the information at hand, but.  Data dependent. Fed is relying on reports that are a couple months old. Really, the data is a couple months old, so there's a lag there, and that proves to be that difficulty when they're looking at everything and if they're staying data dependent.

So that's why the market tries to anticipate and interpret the information in anticipation of what they believe the Fed will wind up do with that information.

There's a gridlock that's happening, and I kind of alluded to that before when I was talking about this consumer price index and what those inflation readings look like. But there's a little bit more than just looking at the inflation readings.

 There's a stalemate right now  that the Fed finds themselves in because they have to do. Something that's  almost impossible, and that mean that is to keep inflation as low as possible  while also keeping a stable economy  and preventing a recession. That's a very difficult thing to do, and that gets more and more difficult as more and more time passes where we exist in a high inflation environment. 

So what's the end? Point here,  chaos is going to continue to be the case and we just need to manage ourselves accordingly. Interest rates have gone up to the highest level that we've seen now year to date, and where we stand. Looking back for the past 12 weeks, we're on the higher end of those averages.

So  my point remains home buying. So if you're a real estate professional and if you are a prospective home buyer or home seller.  There's no market game to play here. We know what the interest costs are. We know what the interest rate is.  If your financial situation can accommodate whatever the situation is that you may be interested in, whether it's purchasing your first home, purchasing your next home, moving up or downsizing,  continue to let your personal financial situation dictate that in your own.

Comfort, dictate what is going to be best for you.  There's not much that we can do by way of prediction at this point,  but I believe that in the next few months, we may start to get better footing and  really it's going to come down to the tariffs. So if you start to see that there's some resolution to tariffs and, some more positive progress in those conversations. 

That's a good time to keep your radar up. Like, okay, now maybe is a good time for me to revisit the situation, take a look, because it's very likely that in that time we're going to see better interest rates. And then the last thing I'll leave you with, as far as the market outlook is concerned,  a lot of analysts are expecting, at best this year, we'll probably see interest rates reach.

Somewhere around 6.5% by the end of the year. There's gonna be a rollercoaster ride in between, but that's where most analysts are setting their expectations right now.  So if we keep living within this half a percent margin, it's just a matter of what works for you.  That's it for our show today.

I hope you found this information helpful and useful. There's a lot  📍 going on, so I'm gonna make sure I keep my eye on the ball here for you and distill all this down so that you can have. Reliable, helpful, useful information for your own decision making. Whether you're a first time home buyer or looking to possibly sell and buy or a real estate professional, I will have another.

Did you know episode coming up on our mortgage Monday. In the meantime, I hope you all have a great weekend and take good care.