Housing Prices Defy Expectations with September Increase, Slowing Inflation Reduction

Housing prices increased in September, bucking the downward trend and slowing progress on lowering inflation. This surprised Fed officials who expected rate hikes to cool the housing market.

Limited housing supply and strong demand may explain the unexpected housing price resilience. Homeowners reluctant to sell in a high rate environment contributes to low inventory.

The jump in shelter costs accounted for half the monthly increase in overall prices in September. This will likely keep the Fed open to another rate hike, though a November increase remains unlikely.

Forward-looking indicators like newly-signed rent rates point to imminent cooling in shelter inflation, though the full effects are lagged. This suggests disinflation in housing should pick up pace soon.

Despite the September surprise, the overall downward trajectory of inflation remains encouraging. But further sharp declines in housing inflation are needed for inflation to near 2% as the Fed desires.