Builder Sentiment Improves Slightly
The latest survey of home builder sentiment on housing market conditions from the NAHB unexpectedly rose from 37 to 38, the highest level since April. However, the index remained in negative territory below 50 for the nineteenth straight month. According to the NAHB, 41% of builders reported cutting prices as an incentive to attract buyers, the highest level since the pandemic. Builders said that uncertainty about tariffs and rising costs made it more difficult to price their homes.
Core PCE Moderates Slightly
Fed officials keep a close eye on inflation, and the PCE price index is their favored indicator. In September, Core PCE was 2.8% higher than a year ago, slightly below expectations, down from an annual rate of increase of 2.9% in the prior month. Progress toward the 2.0% target of the Fed has not been easy, and this desired level has not been achieved since February 2021.
Mixed ISM Signals
Two significant economic reports released last week by the Institute of Supply Management revealed mixed results. The ISM national services sector index rose slightly to 52.6, close to expectations, and the highest level since February. Meanwhile, the national manufacturing sector index fell to just 48.2, the lowest level since July. Readings above 50 indicate an expansion in the sectors and below 50 a contraction. This was the ninth straight month that the manufacturing index was under 50, while the services index has generally held above that level. Although manufacturing makes up just roughly 10% of the economy, it is an important indicator of economic activity. Higher tariffs on foreign goods may provide a lift to domestic manufacturing companies over time and help close the performance gap with services.
Consumer Sentiment Improves Slightly
The latest survey on consumer sentiment published by the University of Michigan revealed that consumers remain concerned about the impact of higher tariffs and the economic outlook. Still, the index rose from the lowest level since June 2022 last month to 53.3, above the consensus forecast of 52.0. The component of the report on consumer inflation expectations showed that the five-year average outlook fell to the lowest level of the year, which was good news for mortgage markets.
Mortgage Rates for the week of 12-08-2025