Inflation Is Cooling — And Mortgage Rates Responded

This week’s Consumer Price Index report delivered a welcome surprise: inflation slowed more than expected.

Headline inflation fell to 2.4% year over year, while core inflation dropped to 2.5%. Shelter costs — which have been one of the stickiest inflation categories — continued to decelerate, helping drive the improvement.

For mortgage markets, that matters.

Bond yields declined following the report, and mortgage rates improved modestly. While rates don’t move dramatically on one report alone, this data reinforces a broader cooling trend.

At the same time, housing fundamentals remain intact. Inventory remains historically tight, foreclosure activity is low, and home price growth has moderated rather than collapsed.

This is what a normalization phase looks like:

• Inflation easing

• Rates stabilizing

• Supply still constrained

• Demand adjusting, not disappearing

Markets are now looking toward upcoming data in early March for confirmation. If inflation continues cooling and labor softens gradually, the environment for mortgage rates could remain constructive.

The takeaway is simple: this is not a panic market. It’s a preparation market.

And preparation wins.