Another round of positive economic data let investors breathe a sigh of relief that the Federal Reserve may have reason to significantly slow down its quantitative tightening measures. The latest consumer price index (CPI) showed inflation cooled off slightly with a 0.1% month-over-month decrease. On an annual basis, the price of consumer goods rose by 6.5%, down from November's 7.1% increase. This is still well above the 2% target rate of inflation the Fed generally likes to see.

A more detailed look at the data behind the CPI report reflects the issues many Americans are up against in 2023. While the price of gasoline was down, the cost of food was up 0.3% month-over-month with the cost of shelter rising 0.8% monthly and 7.5% annually. 

All three major indices closed higher on Thursday, the day of the CPI release. Investors were also encouraged by comments from Boston Fed President, Susan Collins, who intimated she was leaning toward smaller 25-basis point increases this year instead of the 75- and 50-basis point increases from 2022. Philadelphia Fed President Patrick Harker echoed Collins' 25-basis point sentiment while Richmond Fed President Tom Barkin said recent data will allow him to be "a little more nuanced" in his decision making.

The 10-year Treasury note yield moved to 3.45% to close out Thursday trading—its lowest point since Dec. 7, 2022. The 10-year bond yield has been rocky to start the year with a generally downward trend as the month continues. 

The ping pong volatility of the stock market has poured over into the mortgage world as buyers stand at the ready for any dip in rates. Freddie Mac economists noted as much in their weekly mortgage interest rate report, saying "While mortgage rates have resumed their decline, the market remains hypersensitive to rate movements, with purchase demand experiencing large swings relative to small changes in rates. Over the last few weeks latent demand has been on display with buyers jumping in and out of the market as rates move." Freddie Mac's 30-year fixed-rate mortgage declined week-over-week, coming in at 6.33%. 

Homebuyers and refinancers took advantage of the dip in rates in the first week of the year. The Mortgage Bankers Association's Market Composite Index, a measure of mortgage loan application volume, showed that volume "increased 1.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 48 percent compared with the previous week." The index also showed a 5% increase in refinance application volume week-over-week. 

While many experts believe that mortgage rates and inflation have both peaked, there are still two major sticking points for homebuyers in 2023: Home prices and lack of inventory. Inventory can be a tricky subject, too, depending on where you look.

The National Association of Realtors latest data showed just a 3.3 months supply of inventory at the end of November. Meanwhile, Realtor.com's December Housing Report showed a more positive outlook just one month later. The report shows the number of homes for sale increased by 54.7% year-over-year in December with the total number of unsold homes, including homes that are under contract, increasing by 6.0% compared to last year. The downside, according to their report, is that the number of homes for sale is still about 38% lower than it was before the pandemic (2017-2019).

Home price growth has also decelerated but is still rising each month. Realtor.com's report states, “The national median list price declined to $400,000 in December, down from a record high of $449,000 in June (-11.1%). This represents a yearly growth rate of 8.4%, which is lower than last month's growth rate of 11.0%. This is the first time that listing price growth has fallen below double digits since December 2021.”