MARKET UPDATE: 1-20-2026

Week of January 12, 2026 in Review

Inflation data aligned with expectations in December, while lower interest rates have helped lift home sales. Here’s a look at thekey highlights.

  • Consumer Inflation in Line with Forecasts
  • Strongest Existing Home Sales in Nearly Three Years
  • New Home Sales Remain Near Recent High
  • Additional Economic Takeaways
  • What to Look for This Week
  • Technical Picture

Consumer Inflation in Line with Forecasts

Consumer prices rose 0.3% in December and 2.7% year over year, with the annual rate unchanged from the prior report. Coreinflation, which excludes food and energy, increased 0.2% for the month and held steady at 2.6% annually – its lowest level sinceearly 2021. These readings were mostly in line with analysts’ expectations.

Shelter costs remain a major driver of inflation, accounting for roughly 35% of headline CPI and 44% of core CPI. Given this heavy weighting, even modest changes can meaningfully affect overall inflation. Shelter prices edged higher in December, contributing to the monthly increase.

What’s the bottom line?

The Federal Reserve continues to balance lingering inflation pressures against signs of a cooling labor market. Persistent inflation argues for caution on rate cuts, while softer employment data increases pressure to ease policy. The Fed lowered its benchmark Federal Funds Rate by 25 basis points three times last fall. While this rate does not directly set mortgage rates, it influences borrowing costs across the broader economy.

Fed Chair Jerome Powell has cautioned that there is “no risk-free path,” underscoring that both inflation and labor market trends will shape policy decisions in the months ahead.

Strongest Existing Home Sales in Nearly Three Years

Existing home closings jumped 5.1% in December, marking a fourth consecutive monthly increase, according to the National Association of REALTORS® (NAR). Sales were also 1.4% higher than a year earlier. Housing inventory fell 18.1% from November to 1.18 million homes but was still 3.5% higher than last year.

What’s the bottom line?

NAR Chief Economist Lawrence Yun said sales reached their strongest level in nearly three years, helped by lower mortgage rates and slower home price growth late last year. If these conditions persist, buyer demand could continue to build heading into the spring homebuying season.

New Home Sales Remain Near Recent High

New home sales edged down 0.1% from September to October to an annualized pace of 737,000 units, according to data that had been delayed by the government shutdown. Activity stayed near the fastest pace since May 2023 and above economists’ expectations, reflecting contracts signed when mortgage rates were easing.

What’s the bottom line?

New home sales are likely to stay resilient as lower mortgage rates support buyer demand.

However, the supply of move-in-ready homes remains limited. Of 488,000 new homes available at the end of October – one of the highest levels since 2007 – only 122,000 were completed and ready for immediate occupancy. Most inventory is still under construction or not yet started, highlighting the ongoing shortage of finished homes.

Builders face long timelines due to permitting and construction requirements, limiting the ability to quickly expand supply. If mortgage rates continue to decline, renewed buyer demand could again push home prices higher.

Additional Economic Takeaways

Labor market data continue to point to a “low-fire, low-hire” environment. Initial jobless claims fell by 9,000 to 198,000, whilecontinuing claims declined by 19,000 to 1.884 million, though they have remained elevated for much of the past year.

Delayed November Producer Price Index data showed wholesale inflation rising 0.2% month over month and 3% year over year, driven in part by higher energy costs. Core producer prices, which exclude food and energy, were flat on the month and up 3%from a year earlier.

Retail sales surprised to the upside in November, signaling a solid start to the holiday shopping season. Sales rose 0.6% month over month, rebounding from a downwardly revised 0.1% decline in October. Gains were broad-based, with ten of thirteen retailcategories posting increases.

What to Look for This Week

More housing news arrives on Wednesday with December’s Pending Home Sales report. On Thursday, watch for the latest jobless claims, along with several key releases delayed by the government shutdown – including the final reading of third quarter GDP and the October and November PCE inflation reports.

Technical Picture

Mortgage Bonds broke below key support at 100.12 on Friday, ending the week in a new range with the 25-day Moving Average as the next support level. Meanwhile, the 10-year Treasury pushed above the critical 4.20% ceiling, with the 200-day Moving Average now the next resistance.