What happened
Shares of Redfin (RDFN -0.74%) were pulling back today on a broad-market sell-off prompted by a hotter-than-expected personal consumption expenditures (PCE) index reading for January.
The PCE is the Federal Reserve's favored measurement for inflation, and Redfin is highly sensitive to mortgage rates and other macroeconomic factors that the Fed influences.
As of 10:57 a.m. ET, the stock was down 7.1%.
Image source: Redfin.
So what
The PCE price index rose 0.6% on a monthly basis in January, its fastest increase in at least five months. Year over year, the price index was up 5.4%, a slight acceleration from the 5.3% reported in December.
Fed officials would like to see the PCE approach 2% and have committed to keeping interest rates elevated until it does.
Core inflation, which excludes more volatile food and energy prices, was also strong, with core PCE up 0.6% for the month and up 4.7% from a year ago, indicating that inflation remains sticky.
The numbers correspond with recent gains in Treasury yields, as the yield on 10-year Treasury notes is back up near 4%, its highest point since November.
Mortgage rates have also risen, with 30-year fixed mortgages back near 7% after hovering around 6% just a few weeks ago.
As a real estate brokerage, Redfin is especially sensitive to mortgage rates. The company released a report this morning saying that the recovery in the housing market has been hampered by high housing costs and low supply, though pending home sales ticked up in January.
In the release, Redfin noted that the housing market has taken a step back in February as mortgage rates have moved higher.
Now what
The hotter-than-expected PCE reading makes it more likely that the Fed will raise benchmark interest rates by another 25 basis points at its next meeting on March 21-22. That, in turn, increases the chances that mortgage rates will move even higher.
Redfin stock fell nearly 90% last year, and any recovery will depend on the housing market bouncing back. While there are some signs that home sales have bottomed, the real estate stock is likely to be impaired until the Fed stops raising rates.
