Inflation Cools Unexpectedly to 2.7% in November in Positive Sign for Housing Market

The annual inflation rate fell unexpectedly last month, easing pressure on cost-weary consumers and paving the way for lower mortgage rates.

Overall prices as measured by the Consumer Price Index (CPI) rose 2.7% in the 12 months through November, less than economists had expected and down from 3% in September, the Labor Department reported on Thursday.

So-called core inflation, excluding volatile food and energy prices, was at 2.6% annually, the lowest since March 2021. It comes after the national unemployment rate rose to its highest since 2021, at 4.6%, suggesting a slowing labor market is helping keep a lid on prices.

"For housing and consumers, the implications are cautiously optimistic," says Realtor.com® Senior Economist Jake Krimmel. "Early market reactions suggest mortgage rates could drift lower in the near term—though time will tell."

The inflation report combines monthly results from October and November due to the government shutdown, and found that prices rose just 0.2% over the two-month period, an exceptionally low rate.

The unusual combined report omits monthly price changes for most detailed categories of goods, making difficult to determine where prices may actually be falling. Annual inflation data for October is also missing and will never be reported.

Housing inflation continued to cool, with shelter costs rising 3% annually last month, the slowest annual pace since August 2021. Because shelter accounts for roughly a third of overall CPI, cooling inflation in that sector has a major impact on the headline number.

"The drop in inflation in November is good news for consumers," says BrightMLS Chief Economist Lisa Sturtevant. "Inflation is going to be an important factor to watch in the 2026 housing market."

Higher inflation generally means higher mortgage rates, as investors demand a bigger return on long-term loans to offset the falling spending power of the dollar. On the other hand, low expectations for inflation help keep mortgage rates lower.

Lower inflation also clears the path for the Federal Reserve to cut its short-term interest rate, which has a more immediate impact on credit card rates and other short-term loans.

Following Thursday's inflation report, the probability of a Fed rate cut in January ticked up slightly financial and prediction markets. However, oddsmakers still see a more than 70% chance that the Fed will hold its rate steady next month.

"Despite the promising movement on inflation last month, today’s report represents one data point, and we are going to need to see a few more months of CPI data to understand whether inflation is moving in the right direction," says Sturtevant.

The Realtor.com economic research team forecasts that mortgage rates will average around 6.3% through 2026, little changed from where they have hovered in recent months.

The average rate on 30-year mortgages stood at 6.22% last week, according to Freddie Mac.