Weekly Mortgage Rates Lower as Inflation Appears to Slow

It's been a minute since we've seen mortgage lenders quoting rates that begin with a five, but that's where we are now. How long it will last is another story (one you'll have to keep reading to hear).

The average rate on a 30-year fixed-rate mortgage fell 16 basis points to 5.83% APR in the week ending Feb. 19, according to rates provided to NerdWallet by Zillow. A basis point is one one-hundredth of a percentage point.

Recent buyers with enough home equity may find themselves in a good position to refinance. These rates are also welcome news for prospective buyers who've been braving colder temperatures to house hunt in winter.

Why are rates so much lower?

Mortgage rates dropped on the news that inflation may be slowing. January's Consumer Price Index (CPI), released Feb. 13, showed inflation easing to 2.4%. That was slightly lower than anticipated — which is a good thing — but markets reacted like it was a great thing. Here's why.

The Federal Reserve targets a 2% rate of inflation. The central bankers aren't looking for no inflation; instead, their goal is price stability. You don't like it when your grocery bill is surprisingly high, and the Fed doesn't, either.

But inflation's been running above that target for almost five years. The Fed's main tool for trying to lower inflation is raising the federal funds rate, which is the short-term borrowing rate the bankers actually control. (The Federal Reserve does not set mortgage rates.) The idea is that if it costs more to borrow, spending will cool and price increases will slow.

On the other hand, though, if inflation's under control, the Fed can ease up a bit — that's why the CPI excited markets and suddenly raised the odds of a June rate cut. Mortgage rates instantly caught that spring fever, bringing us the lowest rates we've seen in more than three years.

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Why rates could rise

Mortgage rates are always moving. While we saw a big reaction to the CPI release, that may only last until the next shiny new bit of data comes along. In this case, it's coming tomorrow, when the latest Personal Consumption Expenditures Price Index drops. (That's a mouthful, so we'll just say PCE.)

PCE is a different measure of inflation, and it's actually the one the Federal Reserve prefers — the central bankers think it more accurately reflects consumer spending. Because of government shutdown delays, PCE is running a bit behind. While we just got January's CPI numbers, Friday's PCE release will reflect December 2025 data.

If the PCE data is promising, we might see mortgage rates move even lower. But if PCE's a bit gloomy, rates could start creeping back up. As of now, it's looking like we might see the latter. The Federal Reserve Bank of Cleveland projects a slight easing in overall PCE inflation in December with so-called core PCE remaining relatively flat. (Core PCE excludes food and energy prices since those tend to be more volatile.) Still, that forecast anticipates improvement in January.

But that's actually the more optimistic outlook. Some Wall Street analysts are concerned that differences in how CPI and PCE are measured made the recent CPI report paint a rosier picture than reality. Economists at Goldman Sachs and BNP Paribas are reportedly anticipating that PCE could show a significant uptick in December and January. Should tomorrow’s data bear out those predictions, markets' expectations for Fed cuts will fall and mortgage rates will rise.

The article Weekly Mortgage Rates Lower as Inflation Appears to Slow originally appeared on NerdWallet.