[June 23, 2025] Inflation Cools, Geopolitical Tensions Rise

by Moxie Mortgage

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MOXIE MARKET UPDATE

Inflation Cools, Geopolitical Tensions Rise

June 23, 2025

📊 VIX Returns to Stable Averages

The CBOE Volatility Index (VIX) surged to over 50 in early April amid global tariff disputes, but then receded to more historical levels, which it has maintained in spite of rising geopolitical tensions in the Middle East. This indicates that the unfolding events have not exacerbated underlying fears or uncertainty in the markets.

🔍 How do military conflicts affect the bond + mortgage rates?

Conventional wisdom is that war increases global economic uncertainty, which in turn drives investors toward safe-haven assets like U.S. Treasuries— typically pushing yields down and helping mortgage rates. While this tends to be true, it's not guaranteed. Take the Russia–Ukraine conflict, for example: rates initially dipped, but then spiked as inflation fears took hold. A similar concern emerged this past weekend with the situation in Iran, particularly around the potential for oil price shocks. Fortunately, oil prices have barely moved, financial markets have remained steady, and U.S. Treasuries yields have fallen approximately 5 bps.

📉 Inflation Continues to Recede

The two most closely watched inflation metrics—Core Personal Consumption Expenditures (Core PCE) and the Consumer Price Index (CPI) — have continued their decline.

Core Personal Consumption Expenditures (PCE) price index, the Federal Reserve's preferred inflation gauge, fell to 2.5% year-over-year, marking the lowest level in over four years.

For May, the BLS reported that CPI had risen 0.1% to 2.4% year-over-year, down from 3.3% for the preceding period in 2024. Important note: the index for shelter (rents) was the primary factor in monthly increase— an index derived from questionable methodologies.

Regardless, these downward trends in inflation, combined with a resilient labor market, have led to increasingly dovish signs from the Fed in recent weeks.

🏡 Implications for Real Estate

Mortgage Rates Return to May Average

The 30YR Fixed Rate Mortgage average stands at approximately 6.9%, down from 7.1% in recent weeks since the conflict in Iran began.

Affordability Issues Continue to Weigh on Buyers

Existing home sales in May edged up 0.8% to about 4.03 million units—the slowest May since 2009—held back by the “rate lock-in” effect, whereas homeowners with sub‑5% mortgages avoid moving, suppressing inventory levels. Thus, record‐high median prices neared $422,800 and first‑time buyers remain just ~30% of the market (significantly lower than the typical 40% target).

Homebuilder Sentiment Turns Sour

The NAHB index fell to a 2½‑year low in June as almost 40% of builders made price cuts or offered incentives.

🔮 Looking Ahead

Assuming no sudden spike in inflation, the Federal Reserve is likely to cut in July. Fed Governor Bowman made news this week with her comments that she would favor an interest rate cut in July so long as inflation pressures remains stable. This is the latest governor to speak publicly, joining fellow Governor Christopher Waller, who told CNBC that he also thinks the Fed should consider cutting in July.

Fed Policy Outlook

The Federal Reserve has continued to hold off on any rate cuts so far in 2025. That being said, the Fed has continued to signal two cuts in 2025 and an increasing chorus of Governors have spoken publicly indicating their support for a cut in July.

[June 23, 2025] Inflation Cools, Geopolitical Tensions Rise

by Moxie Mortgage

📉 Inflation Continues to Recede

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