This Week In A Nutshell
Mortgage rates are flat despite a much lower than expected inflation report and slightly weak jobs report last week due to serious data issues caused by the government shutdown.
Upcoming Attractions
This is a very light data week given the upcoming holidays. The most important data are Tuesday’s October durable goods and November industrial production data, but these are unlikely to move rates.
Last Week’s Highlights
The two main highlights last week were the October/November jobs data and November CPI inflation data. Combined, they pointed to a weaker and much less inflationary economy. However, both, but especially CPI, were plagued by data distortions that made interpreting the data very difficult. More details below.
NAR Existing Home Sales came in at 4.13 million at an annual rate (-1.0% year over year) after adjusting for seasonal variation with 293,000 actual home sales closed in November (-7.0% year over year) because last month had one less Friday than November 2024. The housing market has not deviated meaningfully from 4.0 million existing home sales since November 2022.
Diving a Little Deeper: The government shutdown is over, but we will be living with the aftershocks in the economic data, particularly inflation data, for a while:
Last Thursday’s CPI inflation report came in massively below expectations at 2.6% year over year for core inflation compared to expectations of 3.0%. At least two-thirds of the difference between actual and expected can be explained by identifiable problems in the data. The remaining one-third could be due to a real unexpected decline in inflation, hidden data distortions, or some of both. Fed officials signaled afterwards that they will not cut rates until there is higher quality data. Much of the issue will reverse in December’s data, but some impact will linger until April 2026.
There were two main problems. First, reported inflation was dragged down by the Bureau of Labor Statistics (BLS) assuming zero inflation where there was missing October data.
Rent is the largest category in core CPI carrying more than 40% of the total weight, but data is not collected every month. The sample is split into six groups where data is only collected for one group each month. For the portion that was supposed to get fresh data in October, the BLS assumed that rent in October was the same as last April, implying zero inflation. The real inflation rate is almost certainly higher than zero because rental inflation in the CPI has not been zero since the financial crisis. Because this group will not get fresh data until next April, it will carry this assumption of zero inflation for the next six months. That means that overall rent inflation–and therefore, overall inflation–will be lower than it should be until April.
There is a similar problem for other categories of data that get fresh data only every other month rather than every month. However, for these, the problem will reverse with new data next month.
BLS officials also collected data later than usual in November because the shutdown ended November 12th. That means the prices they got were more heavily impacted by holiday discounts than usual, implying lower inflation than was actually the case for the entire month of November. This issue should also resolve itself in next month’s data.
Notable Redfin Housing Market Reports
Home Sellers Retreat, With Supply Posting Biggest Decline Since 2023
- Active listings fell 1.4% month over month in November as sellers backed off due to sluggish homebuyer demand.
- Pending home sales fell the most in nearly a year, and the typical home that did sell sat on the market for 53 days—the slowest November pace in nearly a decade.
- A silver lining for buyers: Many sellers are cutting prices to attract offers—the typical home that sold last month went for 1.6% below its final list price.
