Redfin Economists’ Weekly Take: Mortgage Rates Remain Steady Despite Problematic Inflation, Jobs Reports

Overview: Mortgage Rates Hold Steady Amid Mixed Economic Signals

Mortgage rates showed remarkable stability last week, refusing to react strongly to economic data that could have suggested otherwise. The prevailing expectation was that a lower inflation figure combined with a weaker jobs report might push rates downward, but the market remained flat. This resilience reflects a cautious stance among investors and lenders, who are wary of the underlying data quality.

The government shutdown earlier in the quarter has left lingering effects on key economic indicators, especially inflation and employment reports. These distortions make it difficult for analysts and policymakers to gauge the true health of the economy, resulting in a more conservative approach to mortgage rate adjustments.

As a result, mortgage rates are treading water, with no significant movement in either direction. This stability is crucial for homebuyers and sellers who depend on predictable borrowing costs, particularly in a market already grappling with affordability challenges and fluctuating demand.

Inflation Report: Distorted Data Masks True Price Trends

The Consumer Price Index (CPI) inflation report for November surprised many by showing a core inflation rate of 2.6% year over year, well below the anticipated 3.0%. At first glance, this suggested that inflationary pressures might be easing faster than expected, potentially prompting the Federal Reserve to reconsider its rate policy.

However, a closer examination reveals that much of this decline is attributable to data distortions caused by the government shutdown. The Bureau of Labor Statistics (BLS) faced challenges collecting fresh data, particularly in the rent category, which accounts for over 40% of core CPI weight. For certain rent data groups, the BLS assumed zero inflation due to missing October data, an unrealistic assumption given historical trends.

This zero inflation assumption artificially suppressed the reported inflation rate, and because these data points will not be updated until April 2026, the inflation figures will continue to appear artificially low for several months. Additionally, late data collection in November captured unusually high holiday discounts, further skewing inflation readings downward.

Jobs Report: Weakness Clouded by Data Collection Challenges

The October and November jobs reports painted a picture of a slightly weaker labor market than expected. Job gains were modest, and some indicators hinted at slowing wage growth. While these signs could signal a cooling economy, the data must be interpreted cautiously given the unusual circumstances.

The government shutdown led to delays and gaps in data collection, reducing the reliability of employment statistics for these months. Some sectors may be underreported, and revisions are expected in future releases as data is backfilled and corrected.

Federal Reserve officials have acknowledged these limitations and emphasized the importance of waiting for higher-quality data before making significant policy shifts. This cautious approach helps explain why mortgage rates have not reacted aggressively despite the seemingly weaker jobs numbers.

Housing Market Trends: Stability Amid Uncertainty

The National Association of Realtors (NAR) reported existing home sales at an annual rate of 4.13 million in November, marking a 1.0% decline year over year after seasonal adjustments. Actual closed sales totaled 293,000, down 7.0% year over year, partly due to calendar effects such as fewer Fridays in November 2024.

Since November 2022, the housing market has hovered around 4.0 million existing home sales annually, indicating a plateau amid economic uncertainty. Sellers have become more cautious, reflected in a 1.4% month-over-month decline in active listings as many pull back due to sluggish buyer demand.

Pending home sales also experienced the steepest drop in nearly a year, and the typical home that sold in November spent an average of 53 days on the market—the slowest pace for that month in almost a decade. Despite this slowdown, sellers are increasingly motivated to attract buyers by reducing prices, with the typical sold home fetching 1.6% below its final list price.

Impact of Government Shutdown on Economic Data Quality

The recent government shutdown has had a profound and lasting impact on the quality of economic data, particularly inflation and employment metrics. Many data collection processes were interrupted or delayed, causing gaps and assumptions that distort the true economic picture.

For inflation, the BLS had to rely on outdated or incomplete data, especially for rent and other key categories that are not surveyed monthly. This resulted in artificially low inflation readings that will persist until fresh data can be collected and incorporated, potentially as late as April 2026.

Similarly, labor market data suffered from reduced survey participation and delays, leading to undercounts and revisions. Analysts and policymakers must interpret these statistics with caution, recognizing that some apparent economic softness may be a data artifact rather than a genuine trend.

Federal Reserve’s Response: Patience Amid Data Uncertainty

In light of the problematic data, Federal Reserve officials have signaled a commitment to patience and caution. They emphasize the need for higher-quality, more reliable economic indicators before making decisions regarding interest rate adjustments or monetary policy shifts.

This approach helps explain why mortgage rates have remained steady despite mixed signals from inflation and employment reports. The Fed’s cautious stance reduces market volatility and provides some predictability for borrowers and lenders.

Looking ahead, the Fed is likely to closely monitor upcoming economic releases, particularly those less impacted by the shutdown, to better assess the underlying health of the economy. This measured response aims to balance inflation control with support for economic growth.

Upcoming Economic Data and Their Potential Influence

This week promises relatively light economic data releases due to the approaching holidays. The most notable reports include October durable goods orders and November industrial production figures, both scheduled for Tuesday.

However, these data points are unlikely to cause significant shifts in mortgage rates. Durable goods orders and industrial production tend to have a more muted impact compared to inflation and jobs reports, especially when overarching data quality concerns persist.

Investors and analysts will continue to focus on resolving data distortions in the coming months, awaiting more consistent and accurate economic signals that can guide monetary policy and housing market expectations more effectively.

What Homebuyers and Sellers Should Know Right Now

For homebuyers, steady mortgage rates provide some relief amid ongoing affordability challenges. However, the housing market remains competitive, and buyers should be prepared for slower sales cycles and potential price negotiations as sellers adjust expectations.

Sellers face a more cautious environment, with fewer active listings and longer market times. The trend toward price reductions indicates a willingness to negotiate, which could create opportunities for motivated buyers.

Given the uncertain economic backdrop and data quality issues, both buyers and sellers should stay informed about market trends and be prepared for gradual shifts as clearer economic data emerges in the coming months.

Conclusion

Last week’s economic data presented a complex and somewhat contradictory picture for mortgage rates and the housing market. While inflation and jobs reports suggested a cooling economy, significant data quality issues stemming from the government shutdown have muddied the waters. Mortgage rates have remained steady as investors and policymakers adopt a cautious stance, awaiting more reliable information. For now, the housing market continues to show signs of stability amid uncertainty, with both buyers and sellers adapting to a slowly evolving landscape. As fresh data emerges in the coming months, clearer trends will likely guide future mortgage rate movements and market dynamics.