Whether it’s refining your business model, mastering new technologies, or discovering strategies to capitalize on the next market surge, Inman Connect New York will prepare you to take bold steps forward. The Next Chapter is about to begin. Be part of it. Join us and thousands of real estate leaders Jan. 22-24, 2025.

A key barometer for mortgage rates edged up Thursday as bond market investors digested mixed signals on the economy, with the Consumer Price Index showing prices rose more sharply in September than expected but unemployment claims surging last week to the highest level in more than a year.

Yields on 10-year Treasury notes, which often indicate where mortgage rates are headed next, climbed 5 basis points Thursday, continuing a trend that’s brought mortgage rates up by nearly half a percentage point in the last three weeks.

The latest Consumer Price Index (CPI) reading showed that after adjusting for seasonal factors, prices for goods and services increased by 0.2 percent from August to September. That’s the same monthly increase as in August and July, but about twice what economists had forecast. Rising costs for shelter, auto insurance, medical care, apparel, and airline fares drove the increase.

‘All items’ CPI at lowest level since February 2021

Annual inflation as measured by the “all items” CPI dropped to 2.44 percent, the lowest reading since February 2021 — largely due to a 6.8 percent drop in the price of energy and energy services. While electricity cost 3.7 percent more in September than a year ago, gas prices were down 15.3 percent.

Core CPI, which excludes volatile food and energy prices, was essentially unchanged from September, with prices up 3.26 percent from a year ago.

That’s a long way from the Federal Reserve’s 2 percent inflation goal, although the Fed uses a different yardstick — the Personal Consumption Expenditures (PCE) index — to measure inflation.

Since hitting a post-pandemic peak of 7.25 percent in June 2022, annual inflation as measured by the PCE index has come down by 5 percentage points, to 2.24 percent in August.

The PCE index for September, which is derived from CPI and Producer Price Index (PPI) data set to be released Friday, won’t be published until Oct. 31.

“Although September CPI came in warmer than expected, with core CPI particularly surprising to the upside, labor market data remains crucial for the Fed, likely making next month’s payroll data key to determining the pace and extent of further Fed easing,” First American Senior Economist Sam Williamson said, in a statement.

The latest CPI data “likely reduces the chances of a Fed rate cut in November, though a 25-basis point cut remains the baseline expectation,” Williamson said. “Friday’s PPI release will offer further clarity.”

The CME FedWatch tool, which tracks futures markets to predict the odds of future Fed moves, on Thursday put the odds of a 25-basis point rate cut in November at 82 percent. But investors now see an 18 percent chance that the Fed will leave short-term rates where they are.

Jobless claims up 15 percent

Initial jobless claims surged 15 percent during the week ending Oct. 5 when compared to the week before, to 258,000 — the highest level since August, 2023, the Department of Labor reported.

The surge “can be mostly put down to disruption caused by Hurricane Helene, which made landfall late on September 26,” and ongoing strikes at Boeing “have probably played a role too,” Pantheon Macroeconomics Senior U.S. Economist Oliver Allen said in a note to clients.

Claims “usually peak a week or two after the Hurricane makes landfall,” Allen said, but as the impact of Helene starts to fade, the impacts of Hurricane Milton will start to be felt.

“Our base case is that initial claims peak in the week ending Oct. 19 before gradually returning to a more ‘normal’ level by mid-to-late November,” Allen said.

Although initial jobless claims could surge above 300,000 in the next couple weeks, “the Fed will probably look through the labor market disruptions due to the storm,” Allen predicted. “Hurricane Kartrina had very little bearing on the [Federal Reserve’s] tightening cycle in 2005, for example.”

Mortgage rates have been on the rise since Sept. 18, when the Fed approved a 50 basis-point reduction in the short-term federal funds rate.

Investors who fund most mortgage loans had already priced in that cut, and took note that the updated “dot plot” released by Fed policymakers showed they expect to bring rates down more slowly at future meetings to ensure that inflation continues to cool.

An Oct. 4 jobs report fueled the bounce in mortgage rates, showing employers added 254,000 workers to their payrolls in September — and that unemployment declined for the second month in a row, to 4.1 percent.

Mortgage rates on the rebound

After hitting a 2024 high of 7.27 percent on April 25, rates for 30-year fixed-rate loans and other types of mortgages had been on the decline as bond market investors looked ahead to Fed rate cuts this year and next.

But since nearly dropping below 6 percent in the lead up to last month’s Fed meeting, rates on 30-year fixed-rate mortgages have bounced back, averaging 6.42 percent Wednesday, according to rate-lock data tracked by Optimal Blue.

That’s up 39 basis points from the 2024 low of 6.03 percent registered on Sept. 17, but not as painful for homebuyers as the post-pandemic high of 7.83 percent registered in October 2023.

A monthly survey by mortgage giant Fannie Mae showed consumer housing sentiment hit a 30-month high in September as mortgage rates were dropping to 2024 lows, but more than eight in 10 Americans still said it was a bad time to buy a home.

Get Inman’s Mortgage Brief Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to subscribe.

Email Matt Carter