Inflation Ticks Higher, Housing Supply Still Tight

[Derek Brickley]

Week of February 16, 2026 in Review

Delayed reports finally hit the tape this week — including housing data, GDP, and the Fed’s preferred inflation measure.

The big takeaway?

Inflation ran hotter than expected. Housing demand is holding up. Supply is still the bottleneck.

Let’s break down what actually matters heading into spring 2026.

PCE Inflation Runs Hotter Than Forecast

December’s Personal Consumption Expenditures (PCE) report — the Federal Reserve’s preferred inflation gauge — came in slightly above expectations.

• Headline inflation: +0.4% for the month, 2.9% annually
• Core inflation: +0.4% for the month, 3.0% annually

Streaming services jumped nearly 20% in December, adding unusual pressure to the monthly number.

What this means for mortgage rates:

Inflation is still above the Fed’s 2% target, which keeps policymakers cautious on rate cuts.

However — context matters.

Higher inflation readings from early 2025 will soon roll off the annual comparison. If monthly readings moderate, year-over-year inflation could improve naturally in coming months.

This keeps the rate outlook mixed — not alarming.

Pending Home Sales Dip — Likely Weather Related

Signed contracts on existing homes fell 0.8% in January and were down slightly from a year ago.

Winter storms in the South and Northeast likely slowed activity, while the West and Midwest posted gains.

Meanwhile, new home contracts finished 2025 at their strongest levels in nearly four years.

The bigger story: Lower mortgage rates could bring as many as 550,000 additional buyers into the market this year, according to NAR's Lawrence Yun.

The real question isn’t demand.

It’s inventory.

If supply doesn’t rise alongside demand, price pressure returns quickly.

Housing Construction Improves — But Not Enough

Housing Starts rose 6.2% month-over-month in December. Building Permits rose 4.3%.

That’s positive.

But year-over-year? Starts are still down more than 7%.

And builder sentiment remains weak:

• NAHB Housing Market Index: 36 (below 50 = more negative than positive)

Builders continue to cite:

• Affordability challenges
• Higher construction costs
• Buyer hesitation

Bottom line: Supply is improving slowly — but not fast enough to fully meet demand if rates ease.

Housing remains structurally undersupplied.

GDP Slows Sharply in Q4

The first estimate of Q4 GDP showed the economy grew at 1.4%, down from 4.4% in Q3.

The slowdown was largely driven by reduced government spending during the shutdown.

At the same time:

• Initial jobless claims fell to 206,000
• Continuing claims remain elevated at 1.87 million

This continues the “low-fire, low-hire” pattern: Few layoffs. Slower rehiring.

What This Means Right Now

• Inflation is sticky but not spiraling
• The Fed stays cautious
• Housing demand is waiting for stability
• Inventory remains tight
• Spring pricing risk is real if rates cooperate

This is not a collapse environment.

It’s a recalibration phase.

For buyers: waiting still carries appreciation risk. For sellers: supply remains your leverage.

What to Watch This Week

• Case-Shiller + FHFA home price data (Tuesday)
• Jobless claims (Thursday)
• Producer Price Index (Friday)

Inflation data will remain the biggest driver of mortgage rate direction.

Technical Snapshot

Mortgage Bonds are pressing against resistance near 100.38 while holding support at the 25-day moving average.

The 10-year Treasury remains rangebound between 4.05% and 4.126%.

Translation: volatility remains possible, but no breakout — yet.