What’s Next for Mortgage Rates? Key Inflation and Job Market Data to Watch This Week

[Luis Fajardo]

Mortgage rates remain above 7% as the Federal Reserve maintains its cautious stance on inflation. This week, two critical economic reports—the CPI inflation report (Tuesday, February 13) and Initial Jobless Claims (Thursday, February 15)—will provide new insights into whether the Fed will stay on its current path or begin signaling rate cuts.

Real estate investors looking to finance new deals, refinance existing loans, or time their next acquisition should closely monitor how these reports shape market expectations for the Fed’s next move.

Current Market Conditions

Mortgage rates have remained stubbornly high due to persistent inflation and a strong labor market. While rate cuts were initially expected in early 2024, recent economic data suggests the Fed may keep its policy restrictive for longer.

• 30-Year Fixed Mortgage Rate: 7.10%

• 15-Year Fixed Mortgage Rate: 7.35%

• Fed Funds Rate: 5.25% - 5.50%

• 10-Year Treasury Yield: 4.45%

• Housing Inventory: 632,000 active listings (33% with price reductions)

With home affordability still a concern, any shift in rate expectations could have a major impact on both buyer demand and investor financing conditions.

What Analysts Expect from This Week’s Data

CPI Inflation Report (Tuesday, February 13)

The Consumer Price Index (CPI) measures changes in the cost of goods and services, serving as a key indicator of inflation. January’s CPI came in at 3.4% year-over-year, slightly above expectations, reinforcing the Fed’s cautious approach.

Economists expect this month’s CPI to show a slight decline, but if inflation remains above 3.4%, the Fed may delay rate cuts even further.

• If CPI remains high (3.4% or above): Mortgage rates are likely to stay at current levels or even increase slightly as the Fed remains restrictive.

• If CPI drops below 3.2%: Investors could see a market shift, with the Fed more likely to soften its stance, allowing rates to gradually decline.

Initial Jobless Claims (Thursday, February 15)

Jobless claims measure the number of people filing for unemployment benefits. A strong labor market gives the Fed confidence to keep rates higher, while an increase in claims could pressure them to pivot sooner.

Last week, jobless claims came in at 218,000, slightly below expectations. Analysts are watching whether claims rise above 240,000, which could signal softening labor conditions.

• If jobless claims are low (below 210,000): The labor market remains strong, keeping the Fed in no rush to cut rates. Mortgage rates would likely hold steady.

• If jobless claims rise (above 240,000): Higher unemployment could push the Fed to act sooner, improving the chances of lower rates in the second half of the year.

How This Data Could Impact Real Estate Investors

Scenario 1: High Inflation and Low Jobless Claims

A combination of sticky inflation and a strong job market would reinforce the Fed’s stance that rates need to remain elevated. Mortgage rates would likely stay above 7%, keeping financing costs high and reducing affordability for buyers.

Investors takeaway: Focus on off-market properties and motivated sellers where there’s more room for negotiation. Investors relying on financing should budget for extended higher rates and ensure their deals still cash flow under current conditions.

Scenario 2: Cooling Inflation and Rising Jobless Claims

If CPI shows inflation slowing while jobless claims rise, the Fed may begin signaling rate cuts sooner than expected. This would put downward pressure on mortgage rates, making financing more attractive.

Investor takeaway: Secure financing now in preparation for lower rates. If rates decline, demand will increase, and competition for properties will rise. Investors should act early before market sentiment shifts.

Scenario 3: Cooling Inflation and Strong Job Market

If inflation declines but jobless claims remain low, it creates a best-case scenario where the Fed can ease rates gradually without fearing an economic slowdown. Mortgage rates could begin declining in small increments.

Investor takeaway: This is an ideal environment to lock in deals early before rates drop further. Those holding higher-rate loans should start preparing for refinance opportunities in the second half of the year.

Scenario 4: High Inflation and Rising Jobless Claims

If inflation remains high while job losses increase, it signals uncertainty in the economy. The Fed may be forced to cut rates, but if inflation does not ease, they could remain hesitant.

Investor takeaway: Investors should watch for distressed sales in areas where job losses are more concentrated. Cash-flowing properties will be key to navigating potential volatility in both lending and pricing trends.

What to Watch Moving Forward

While markets originally priced in multiple Fed rate cuts in 2024, the latest economic data has forced expectations to shift. The first rate cut is now projected for mid-2024, but this could change depending on inflation trends and labor market conditions.

• Next Federal Reserve Meeting: March 19-20, 2024

• Current Market Forecast: 50% chance of a rate cut in June, increasing to 80% by September

• Key Indicators to Track:

• CPI inflation reports in March and April

• Jobless claims trends over the next two months

• Housing market activity heading into Q2

For real estate investors, adapting to rate trends is critical. Whether rates hold steady or decline, those who position themselves early—by securing financing, analyzing local markets, and identifying motivated sellers—will have the best opportunities.

Final Thoughts

This week’s CPI and jobless claims data will set the tone for mortgage rates heading into the second quarter. Investors should be prepared for different outcomes and adjust their strategies accordingly. Whether rates drop soon or remain elevated, timing the market correctly can be the key to securing profitable deals.

For those waiting on rate relief, now is the time to identify opportunities before competition increases. If financing remains expensive, focusing on high-cash-flow properties and strong rental markets will provide the best hedge against prolonged high rates.