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Low Inflation Fueling Low Mortgage Rates

Overview: The past week was a quiet one for mortgage markets. The small amount of major economic data was right on target, and the investor outlook for additional government stimulus was little changed. Mortgage rates remained close to record-low levels.


The reduced economic activity resulting from the coronavirus has caused a decline in inflation, which has helped keep mortgage rates low. The Consumer Price Index (CPI) is a widely followed monthly inflation report that looks at the price change for goods and services. In September, core CPI, which excludes the volatile food and energy components, was just 1.7% higher than a year ago, matching expectations. This compares to readings that were consistently well above 2% in the months prior to the pandemic.

Lawmakers have been in negotiations about additional fiscal stimulus for quite a while without reaching an agreement. While investors still expect that there will be a deal at some point, they remain uncertain about both its size and timing. The results will be extremely important to mortgage rates for a couple of reasons. First, government spending increases economic activity, which raises the outlook for future inflation. In addition, the supply of bonds goes up to fund the spending. Since both higher inflation and increased supply are negative for mortgage rates, news favoring a new stimulus deal generally causes them to rise.


Core CPI (annual % change)

Week Ahead

October 16 — Retail Sales report

October 20 — New Residential Construction report (aka Housing Starts)

October 22 — Existing Home Sales report

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