Continued high inflation has caused the Federal Reserve Board to raise short-term interest rates, bringing inflation back down. This puts pressure on mortgage rates, often pushing them even higher, and its effects ripple through the property market.

Inflation rose to 3.2 per cent in July, up from 3 per cent the previous month, according to the government's Consumer Price Index released on Thursday. Real estate economists say the report may look a little worse at first glance than it actually is.

July's inflation figures are being compared to those of July 2022, when inflation has already begun to cool. This would lead to a higher result a year from now. Also, on a yearly basis, inflation would be at 2% this year - the Fed's target.

Danielle Hale, chief economist at Realtor.com®, said, "This increases the likelihood that the Fed will keep rates stable." Mortgage rates can remain stable and may even begin to fall.

Mortgage rates, currently hovering around 7%, have brought the housing market to a standstill. Many homebuyers have been pushed out of homeownership, while many would-be sellers are staying put because they can't afford to buy a new home at higher rates. This has exacerbated an already severe housing shortage.

Our expectation is that when inflation gets back to target, we will start to see various interest rates start to fall," Hale said. She expects rates to fall below 7 per cent in the next few days." We should see a slowdown in mortgage rates, but not this fast."

Falling mortgage rates could give the property market a bit of a boost, with buyers getting more of a stretch for their money and more sellers expected to list their properties for sale.

Still, the Fed may choose to raise rates again at its next meeting, even later in the year. If the Fed decides to raise rates again, its rates would be at their highest level since 2001.

Today's data keep hopes alive for a broader reversal in interest rates.

Matt Graham, chief operating officer of Mortgage News Daily, said, "Core inflation has clearly changed." It just takes more time and more data to confirm that the shift is sustainable."

In July, housing costs accounted for about 90% of the monthly increase in the core inflation measure considered by the Fed.Lisa Sturtevant, chief economist at Bright MLS, explains that while rents, which are the primary measure of these costs, have declined in recent months, these declines can take nine to 12 months to show up in the government's inflation data show up in the government's inflation data. The multiple listing service covers the mid-Atlantic region.

Sturtevant said in a statement, "As builders complete more flat blocks this year, we should expect falling rents to bring inflation down in the coming months.

All this bodes well for the property market.

Realtor.com had predicted that mortgage rates would fall to 6.1 per cent by the end of the year, but Hale now thinks that forecast "may be a little unrealistic".

For the rest of the year, mortgage rates will be more of a drag on housing activity than a boost, she said.