Recharged Inflation To Harm Housing Affordability

Last week’s inflation data surprised many analysts, and if the trend keeps up, housing affordability will take a toll.

Consumer prices were up 0.5% in January, its highest rate since June 2024. Experts had expected to see no change on the month. Producer prices also unexpectedly rose by 0.4%.

“The long national nightmare of inflation isn’t over yet for consumers, businesses, and investors,” Chris Rupkey, chief economist at FwdBonds, wrote in commentary following the CPI’s release. 

“There could be some seasonality that pushes prices up at a faster clip in January, but today the news for officials is all bad.”

The main upward driver appears to be businesses raising prices at the start of the new year. Avian flu, which has impacted egg prices and thrown other agricultural products into crisis, is one culprit.

But President Donald Trump’s tariff war is widely seen to be putting significant pressure on businesses and investors.

Nobel Prize-winning economist Joseph Stiglitz called the U.S. a “scary place to invest” thanks to tariffs and the White House’s general attitude.

“I could certainly see a scenario where we get to stagflation – we get inflation, and a weak economy,”  he told The Guardian. “I cannot see a really robust economy, because I just see the global economy suffering so much from the uncertainty that Trump poses.”

Reinvigorated inflation is set to have negative consequences for the already fragile housing market. Lenders tend to hike rates to make sure they make money on loans when inflation is rising.

The Central Bank’s decisions also impact rate movement, and sustained inflation could foreshadow stricter policy. Many experts now predict the Fed is finished slashing rates for 2025, and some have even suggested a rate hike may be coming.

Mortgage rates are hovering just under 7% as of mid-February, and economists at Fannie Mae don’t see them dipping below 6.5% in 2025.