Rising inflation dims hopes for mortgage rate relief 

The latest inflation data was not good news for homebuyers hoping to see lower mortgage rates this spring.

The Consumer Price Index rose by 3% in January, according to the U.S. Bureau of Labor Statistics. That's up from 2.9% in December, pushing inflation further from the Federal Reserve's goal of 2%. The big drivers last month were fuel, used cars and food — particularly eggs, which have gone up in price by more than 50% in the past year.

No rate cuts until later in the year (at least)

Following its January meeting, Federal Reserve Chair Jerome Powell said the board was not "in a hurry to make any adjustments," suggesting a spring rate cut was already unlikely. A strong jobs report last week further reduced the chances of a cut, and the latest inflation news will send mortgage rates higher, said Chen Zhao, who leads Redfin's economics team. 

Zhao noted that the Fed is in search of a "neutral" interest rate — one that "neither stimulates nor contracts the economy" — and is expected to pause rate cuts until the fall.

"The Fed cannot risk accidentally cutting too much and stimulating the economy when inflation is a little high, the labor market is strong and the White House weighs inflationary policies," Zhao said. Those policies include a variety of tariffs, some of which are temporarily paused.

Analysts are now betting on just one rate cut in 2025, versus the two previously forecast, while some have even suggested that the Fed may not cut rates at all this year. 

That means new homeowners and prospective buyers shouldn't expect mortgage rate relief anytime soon, said Joel Berner, Realtor.com's senior economist.

"Recent buyers who were told in the last few years to 'marry the house and date the rate' may find themselves wedded to a mortgage in the 6-7% range for longer than they originally hoped," Berner said. "Saving up for as large of a down payment as possible is key in this high mortgage rate environment."

The 30-year fixed-rate mortgage rose following the CPI report, according to Mortgage News Daily. The daily rate on Feb. 12 hit 7.13% in the morning hours, up from 7.05% the day before.

Housing supply key to driving down inflation

Shelter inflation was down slightly from December, but it remains well above the overall CPI at 4.44% and is one of the more difficult components to cool, said Lisa Sturtevant, chief economist for Bright MLS. 

"It will be very hard for the headline inflation number to reach the Fed's 2% goal without a slowdown in housing costs. More housing supply — both rental and for-sale housing — is the key to easing housing costs and bringing the overall rate of inflation down," Sturtevant said.

Unfortunately, elevated interest rates — which keep financing costs high for builders — have a negative effect on housing supply, said Fan-Yu Kuo, a senior economist at the National Association of Home Builders.

"Given the housing market's sensitivity to interest rates, a higher inflation path could extend the affordability crisis and constrain housing supply as builders continue to grapple with lingering supply chain challenges," Kuo said.