John's Finance Corner: Inflation Progress, Builder Confidence Drops, & U.S. Credit Downgrade

Last week’s economic reports provided mixed signals for the housing and mortgage markets. Inflation data showed continued progress, but home builder confidence declined, reflecting uncertainty in the economy. Additionally, Moody’s downgraded the U.S. credit rating, adding further volatility to bond yields and mortgage rates.

Inflation Trends: Encouraging Signs, but Tariff Impacts Loom

Two key inflation reports—Consumer Price Index (CPI) and Producer Price Index (PPI)—brought positive news:

• CPI rose just 0.2% for the month, with the annual rate declining from 2.4% to 2.3%.
• Core CPI (excluding food and energy) remained steady at 2.8% annually, showing stability.
• PPI dropped 0.5% monthly, bringing the year-over-year figure down to 2.4%.
• Core PPI declined 0.4%, with the annual rate falling to 3.1%.

While these numbers suggest inflation is moderating, it’s unclear if they fully reflect the impact of tariffs introduced in April. As these trade policies take hold, we could see inflation tick back up in future reports, potentially affecting rate expectations.

Home Builder Confidence Declines

The National Association of Home Builders (NAHB) reported a six-point drop in builder sentiment, signaling growing concerns in the construction sector. Several factors contributed to the decline:

• Elevated interest rates, keeping borrowing costs high.
• Tariff concerns, creating uncertainty in material pricing.
• Unclear economic outlook, impacting homebuyer confidence.

Despite the slowdown, NAHB Chairman Buddy Hughes remains optimistic, stating that trade negotiations and tax policy advancements could help stabilize the housing market and increase demand over time.

Moody’s Downgrades U.S. Credit Rating: Impact on Mortgage Rates

Over the weekend, Moody’s lowered the U.S. credit rating from AAA to AA1, citing:

• Public Debt-to-GDP at 123%
• Federal Deficit at 6.4% of GDP
• Concerns over excessive government spending

The downgrade triggered a sharp spike in bond yields, pushing mortgage rates higher at the start of the week. However, historical data suggests that initial market reactions to credit rating cuts are often short-lived, with bond yields and mortgage rates stabilizing after the immediate shock fades.

Outlook: Patience as Tariffs & Policies Take Hold

While mortgage rates remain near levels seen earlier this year, there’s hope for improvement in the coming months as policymakers navigate economic uncertainty. Once tariff impacts are fully realized and new policies stabilize, we could see more favorable conditions for homebuyers.

For industry professionals, education and proactive guidance are key in helping clients navigate these shifts. With market volatility still present, mortgage experts who communicate clearly and provide insight on rate trends will continue to be valuable resources for buyers and sellers alike.

John Lamberg

MORTGAGE LOAN ORIGINATOR

NMLS 189233