November rates keep marching uphill

Whether you measure it using the CPI or the PCEPI, inflation has risen steeply this year. That, by itself, is enough to lift mortgage rates.

November mortgage rates forecast

After climbing solidly higher in October, mortgage rates are likely to continue rising in November, but not as steeply.

The average rate on the 30-year fixed-rate mortgage was 3.04% in October, a significant increase from September’s average of 2.91%. It was the biggest one-month increase since March, when vaccine rollouts were nurturing optimism. But in October, a not-so-optimistic force nudged rates higher: inflation.

Prices rose 5.4% year over year in September, according to the most recent Consumer Price Index report. It was the highest CPI figure since July 2008.

The Federal Reserve’s favored inflation report, known as the Personal Consumption Expenditures: Chain-type Price Index, was up 4.3% year over year in August, the highest reading since January 1991.

Why inflation pushes rates higher

Your mortgage lender strives to charge an interest rate that’s higher than the expected longterm inflation rate. Otherwise, inflation will eat into the lender’s profits. Think of it this way: You lend a friend $10 for lunch and your friend pledges to repay it in a year at 3% interest.

A year later, your friend hands you the promised $10.30. But if that same lunch now costs $10.54, you came out on the losing side of that loan. You got a 3% return, but it was exceeded by 5.4% inflation.

Whether you measure it using the CPI or the PCEPI, inflation has risen steeply this year. That, by itself, is enough to lift mortgage rates. Meanwhile, the Federal Reserve’s presence in financial markets contributed to October’s mortgage rate increases.