Weekly Mortgage Rate Update- 03-18-2025

Weekly Mortgage Rates

March 18, 2025

The devil is in the details

We had a few headline reports last week that on the surface would have helped rates improve, but as Economist Diana Swonk pointed out, the devil is in the details. Starting with the inflation data for February that showed both the CPI and PPI measures cooled with the annual inflation rate slowing more than expected. Normally that news would have moved rates lower, but it’s the data that lies beneath the surface that is concerning. As Diana pointed out, the reports showed market compression and rising input costs (steel, aluminum, lumber). PCE is due out later this month and as the key inflation measure, it matters more than any other report on inflation. The components in last week’s CPI and PPI point to a higher upcoming PCE reading.  

From economist Parker Ross: “If you look at supercore inflation excluding public transportation, you’ll see that Feb ’25 was the hottest print since last March. Note that this is before any meaningful tariff impacts.” Noted Parker. Noted.

On Monday, retail sales for February came in slower on the headline reading.  Increasing just 0.2% for the month when 0.7% was expected. Slower economic news usually helps mortgage rates, but once you get past the headline, the internal control group showed an increase of 1.0% for the month. This was made more significant because January’s reading was also revised downward to -1.0. So, month over month this was a big move higher in retail sales. Keep in mind that retail sales reports dollars spent and not units sold, this could also be inflationary versus showing stronger actual sales.

Overall, the mood is not great out there. The reports we are seeing on consumer sentiment and business optimism both turning more negative, which leads to lower economic activity. This is not ideal with inflation also showing signs of flaring up. All this leads us to the main event of the week.

It’s Fed week!

We have the Fed meeting that starts today and ends tomorrow with the release of their economic projections. The projections are the focus this week as they will show what the Fed sees for the months ahead and will be given more weight than the data from past months, which haven’t had time to reflect the recent shifts in policy.  We are also looking for further guidance on changes to the Fed balance sheet. We have talked about this being more impactful to mortgage rates than the actual Fed rate, since it controls the supply and demand of bonds with longer terms, like mortgages.

The concern now is the Fed will take too long to act. After getting the transitory inflation call wrong in 2021 and then chasing down runaway inflation, they don’t want to make that mistake again and lower rates too soon. But they also are challenged to balance this concern with weakening economic indicators. No doubt they have seen the first quarter GDP estimates that show negative growth expected.  

“It won’t be an easy task for the Fed to gauge their reaction this time. Tariffs represent a supply shock that both raises inflation, which calls for higher interest rates, and hurts employment, which calls for lower rates. The Fed would have to choose which threat to emphasize.” - Nick Timaros 

So, we eagerly watch for any nuance to their stance or if we are still waiting for that “greater clarity” Powell needs to act. As mentioned above, the fear is they will act too late.

Looking ahead

The data we rely on for the rate outlook has had a muted response from markets, with rates not being swayed by much these past two weeks. Markets have always been forward looking, but that matters more now that we are in a transition period.

On the technical side of things, our beloved 10-year Note is stuck. We need to break below and hold under 4.2% to see a meaningful move lower in mortgage rates and we have a ceiling of 4.33% on the high side we hope holds otherwise we will start going the wrong direction.  Maybe this is the week. The door is certainly open for change. 

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