How Inflation and a Credit Score Overhaul Could Reshape Homebuying in 2025

In Part Two of this week’s update, Pete D’Angelo dives deep into the real inflation story—and why the Fed’s path to 2% may hit a dead end without lower interest rates. 📉 He walks through the PCE vs CPI debate, breaks down the persistent pressure from shelter costs, and delivers sharp insight into what’s really holding inflation up.

Then, Pete unpacks a game-changing shift in credit scoring: the new VantageScore 4.0 rollout by Fannie Mae and Freddie Mac. With rent, utilities, and telecom bills now factored in, 13 million more Americans could enter the homebuying pool. 🏠 Is this the boost the market needs—or the spark for more price pressure?

📌 #InflationUpdate #FedRateCut #CreditScore2025 #VantageScore #HomeAffordability #FirstTimeHomebuyer #MortgageNews

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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

PODPodcast_Inflation and Credit Score-07.10.2025

 [00:00:00] 

Welcome back to the Pulse and perspective with me, Pete D'Angelo. I hope you're doing well and having a great week. Here's part two for our update. I really wanted to continue that analysis that we started last week looking at inflation, 

today we're gonna actually talk about the personal consumption expenditure, paints a little bit of a different picture. But I think our point remains about the importance of a fed rate cut for us to actually reach their own 2% target. So we're gonna look at that.

There was a very important update that was made more public again this past week about. Credit scoring models and a new implementation for Fannie Mae and Freddie Mac. The government-sponsored entities that set forth the guidelines and requirements for conventional lending. Conventional loans and this new credit scoring [00:01:00] model that is being included, but it's not a new model.

We're gonna talk about the personal consumption expenditure. Brief recap, two main inflation reports that we get on a monthly basis. Consumer price index, CPI, personal consumption expenditure. PCE. The PCE is the preferred gauge that the Federal Reserve looks at when they want to understand what does inflation look like in the country.

They pay heed to the consumer price index, but the personal consumption expenditure is the one that they keep a keen eye on. Historically, over the past few years, the consumer price index. Has been reflecting a little bit of a higher number for inflation than the personal consumption expenditure.

This is because these two have not been created equally. The consumer price index weights different parts of the market. The economy that services, housing, food, energy, they weight them differently than in the personal consumption [00:02:00] expenditure. And that's part of the reason why the Fed has chosen the personal consumption expenditure as their preferred gauge.

They believe. More strongly in how the personal consumption expenditure is weighted. The latest report was from July, and the PCE report showed the 4.1% year over year. Increase for the shelter component. We're gonna go to May real quick because I think May is gonna be important for us to understand how this is going to transpire.

That's gonna set the stage for when we look at June. So if we look at May 4.1% year over year. Shelter component appreciation. That is the housing component. So if you rent a home or own a home that you live in and you pay a mortgage that's captured by this data, and that's down from 4.2% in April, the peak for this shelter component was 8.3% in 2023.

[00:03:00] So we have been making. Significant progress. We've cut that in half now compared to where it used to be in at the peak in 2023, there's been progress, but shelter share of PCE is 15 to 18%, so that's weighted a little bit differently than the consumer price index we talked about last week.

Consumer price index weights at a little bit higher, so it's a smaller portion of the number. The core personal consumption expenditure removes what are dubbed to be volatile elements. That is food and energy. So energy costs and food are not part of the number.

When we look at that, the three month annualized value appreciation, you know, price appreciation is 1.7%. The core PCE minus the housing. So now we're gonna take the housing component out. It's 1.1%. So. As you can see that is showing us below 2%, which is good. Fed wants to see the [00:04:00] headline, which includes everything below at 2%.

So it's a little different than the look that we get from the consumer Price index, the headline. PCE. So that's, again, that's the, the main one that shows us, including everything with the proper weighting.

That headline came in at 2.3% in May. And that is down when it's compared to June. June, it went up to 2.46%. So there's a little bit of a tick up the core PCE annualized. May to June, may was 2.7%, June 2.68%. The Federal Reserve has mentioned they are targeting 2% for inflation, and they've held their rates steady after their cuts in 2024, wrapping up the year. They've held their rates steady at 4.25% to 4.5%. That's since December, and even though we're seeing some cooling inflation, they're holding out because [00:05:00] part of the risk of lowering the Fed fund rate is stoking the flames of inflation again, because if you make access to credit a little bit easier, people are gonna have more money.

When they have more money, they spend more money, and if they have more money to spend, they have more money to spend more for things. And that is part of how capitalist market operates. Value is what someone will pay for something. So if people have the ability to pay, those prices will go up and that's how the market will operate.

So even though we're seeing this breakdown, I think it's staying consistent with what we saw with the consumer price index. The overall inflation numbers because of like we looked at that core, it was 0.6% difference when we look at the core personal consumption expenditure when we remove housing. So that is a huge part of it.

And when we look at the [00:06:00] total headline number again, that is a. Big part, and if we have it, if, let's just say, and I think this is the best way to place the argument again, if we were to see that the personal consumption expenditure shows us that shelter component is, starts running at a comparable inflation rate as the other core elements, which is around 1.1, what happens to our headline number?

As long as the volatile elements don't have surges, for whatever reason, we are at 2%. So that is the only way that that gets accomplished at this point. And I mean the, the, the in, I mean, I would say that if we're looking at the progress that inflation's made for the shelter component over the past, you know, since the peak in 2023, obviously we're at half right now, there hasn't been.

Interest rate cuts throughout that [00:07:00] whole time so that that isn't 100% it, but that progress that was already made needed to happen within the market. Now the interest rates could be supporting this higher cost. That's the point that I'd like to make. The interest rates as they are, are supporting and providing a floor and the floor would need to drop in order for us to see that inflation also come down to their target.

So that's my 10 cents. Now, between last week and this week, that's my 10 cents of input on the inflation reports and what we can expect. Let's keep an eye out. I'm going to report out on the next couple inflation reports and we're gonna see if these trends continue to follow what we've been seeing over the past few weeks.

Now moving on to these changes for credit scoring models. Now I wanna set the stage by telling you about where credit scores currently are before this change, so you have a reference point. When you apply for a mortgage, let's talk [00:08:00] about that. When you apply for a mortgage, you're going to have what's called a trier credit report.

Pulled three credit reporting bureaus are going to provide US scores for your payment history and your credit history. Those are TransUnion, Equifax, and Experian. So those are the three bureaus that provide us your scores. Underwriting guidelines allow us to pick to ch. We use the middle score for each borrower, and if there's multiple borrowers, we take a look at the middle score for each of them and then we choose the lower.

Some guidelines also now permit for us to average out those scores. The implementation of that depends on your lender, but that is something that is possible this update. Is actually an additional credit scoring model outside of. Equifax, TransUnion and Experian. This is called the Vantage Score 6.0.

You may have seen this in your banking institution app. [00:09:00] I believe it was Wells Fargo that showed this, in the banking app. And if you had a credit card with Wells Fargo, I have seen that in the past for a number of years. So this is something that's going to be added in now that the expectation. It will start to open up the opportunity for access to mortgage credit for many more Americans, because this is a new credit scoring model that includes things that are not currently present.

In your experience, TransUnion and Equifax and those things are rent payments, utilities, payments, and telecom payments. Now, for the smart kids in class, you're probably going to say, wait a minute, I can have telecommunications included in my credit report. And you are correct, but that does require you to take steps to reach out to.

The credit bureau and provide them with information so that they can verify your payment history for things like telecom and utilities that can help to boost your [00:10:00] scores. That is something that's there, but it requires steps. This vantage scoring model does not require that. So let's take a look at the history of the Vantage score.

It actually started in 2006. So in 2006, this new model came out. And it uses trended data and machine learning, which is meant to offer a more powerful and inclusive assessment of an individual's credit and their credit history to make the best judgment on whether or not to lend to that individual.

Let's go back to the core of what all of this is about. Why do we look at credit? Credit reports are our way. Understanding the risk of lending. Lending is risk assessment across the board. So if we talk about mortgages, this applies to credit cards, this applies to auto loans, and any other time you are accessing credit and, getting funds, there's an assessment [00:11:00] of risk occurring.

Credit scores are a great way to do that because credit scores show us a person's history. Of making payments and what better way to understand what the risk is to lend money to someone than to look at the history of how they've repaid their debts over time. This Vantage score comes in with a more 21st century approach to credit scoring because.

The credit scoring models come from when there was an individual in Brooklyn who kept a ledger of people that he lent money to and their payment history and created this scoring. That was the kernel that turned into these credit bureaus that we now have, and this whole concept of credit reporting and credit assessment.

So it started there called the Fair Isaac fico Fair Isaac Credit Scoring Model. Right? That's what this comes from, wild. 

But now let's take a look at this. This is something created in 2006, almost a hundred [00:12:00] years difference in, in the creation of this. So it makes sense that this is something that's getting implemented now for a better look at a person's credit history. This model is estimated to score approximately 33 million more consumers than the traditional credit scoring models.

And based on that number, and based on what the cross pollination is for people who do have credit scores through traditional models, there's an expectation of around 13 million people with scores that would be within. Credit qualification range. With that, the Federal Housing Finance Agency mandated that the Vantage Score 4.0, for government-sponsored entities, Fannie Mae and Freddie Mac, will be phased into implementation, which has already started, but the deadline for full blown implementation is the fourth quarter of this year, fourth quarter of 2025.

So [00:13:00] this model is designed to deliver consistent. Reliable information about a person's credit history, as well as opening up that opportunity to a multitude. More of possible would be home buyers. The other expectation, these are all projections at this point, but the Federal Housing Finance Agency expects that this change could translate into approximately a trillion dollars more of mortgage activity.

When this takes full effect. So this is something that could be helpful, keep an eye out on more updates. I'm also gonna keep you informed on the implementation and the rollout of this and what it looks like from a rubber meeting road for borrowers that are qualifying for a mortgage. So I'll be excited to share more on that as that develops.

So to conclude today, the overall look that we had at inflation shelter components, a big part. We're gonna need to see interest rates improve. The Federal Reserve is not [00:14:00] expected to cut rates at their July meeting. I believe they have August off. They're gonna be back in September. So without a meeting in August.

Interest rates are going to be at the mercy of the market and headline news and what's going on. We're gonna really have to pay close attention over the next few weeks. I would highly recommend if you are on the fence about selling or buying. Now is a great time to get ducks in a row. Feel free to reach out to me so we could talk more about that.

Then. This new credit scoring model is exciting. This is something that can really help potential home buyers, particularly first time home buyers because more rent payments, utilities and telecoms get included in that scoring model. So having that included in the scoring model really helps to boost people's potential for qualification because things like that were not considered in traditional credit scoring models.

That's it for the show today. I hope that you found all this helpful and useful. If there's anything that you would like me to deep dive on. Please feel free to reach out to me. My [00:15:00] contact information is in the description below or for my radio free Montclair listeners. Please feel free to email me at peter dot dangelo@rate.com.

I'll look forward to your next update next week. But in the meantime, have an awesome weekend and take good care.