Consumer Prices Just Rose Again. Will Mortgage Rates Follow Suit?

The quick answer? Not necessarily.

Many would-be buyers are struggling to purchase a home today for several reasons. First, there's a glaring lack of real estate inventory to contend with. There's also the matter of elevated home prices. And finally, there are mortgage rates -- namely, the fact that they're higher these days than they've been in more than a decade.

You'll generally hear that now's a good time to bring a larger down payment to the table when you sign a mortgage. The more money you're able to put down at your closing, the less interest you're apt to rack up on your home loan -- and the lower your monthly housing payments will be.

But saving more money for a home down payment is a tough thing to do at a time when inflation is soaring. And recently, inflation levels rose at a faster pace than expected.

January's inflation data was loaded with surprises

In January, the cost of consumer goods rose 0.5% compared to the month of December. That's a pretty notable month-to-month increase. And it also means the cost of consumer borrowing on a whole could potentially get more expensive.

The reason? The Federal Reserve is unlikely to be pleased with this recent inflation report. As such, its next interest rate hike could be a larger one. And that could indirectly drive up the cost of consumer borrowing, making it more expensive to take out an auto loan, home equity loan, or personal loan.

But while consumers could face higher borrowing costs in the coming months due to January's inflation data, those looking to buy a home may not be as impacted. That's because a larger interest rate hike on the part of the Federal Reserve won't necessarily result in an increase in mortgage rates.

Mortgage rates tend to move independently

While it's true that rate hikes on the part of the Federal Reserve tend to indirectly but notably drive up the cost of consumer borrowing, mortgage rates tend to be the one exception to that rule. Just look at what happened with mortgage rates last year.

To buyers' dismay, they started rising sharply at the start of the year, even before the Federal Reserve started getting aggressive with its own rate hikes. And over the past few months, mortgage rates have cooled off substantially, giving home buyers some much-needed relief.

So all told, mortgage rates could climb back up in the coming months, or they could continue to fall. But either way, this recent inflation report -- and the Fed's reaction to it -- may not influence mortgage rates all that much.

Of course, this doesn't mean prospective buyers won't continue to run into issues with affordability during the first half of 2023. Housing prices are still up, and low inventory means that sellers can still get away with charging a premium.

But mortgage borrowers are not necessarily doomed to higher rates on the heels of the latest economic news. And that's an important thing for today's buyers to keep in mind.