Housing News

Homebuyer Relief on the Horizon? Mortgage Rates May Soon Decrease

Homebuyers may soon get a break in the form of lower housing costs.

Mortgage rates could soon dip as inflation cools and that may already be happening.

In June, inflation rose 3% from a year earlier, according to the Consumer Price Index released on Thursday. That was down from 3.3% in May.

“It’s something to smile about,” said New American Funding Chief Investment Officer Jason Obradovich. “It’s my opinion that if we get additional confirmation that inflation is moving lower at this pace, then mortgage rates will continue to come down.”

If rates do retreat from their current level, it will decrease the cost of lending for borrowers and could make buying a home more palatable.

The U.S. Federal Reserve has been keeping interest rates high until inflation moves closer to its 2% target. As inflation comes down, the Fed is more likely to start cutting rates. While the Fed’s rates and mortgage rates are separate, they often move in the same direction.

So, when the Fed begins lowering rates, mortgage rates are expected to fall in tandem.

“The market has been looking for signs that inflation is nearing the Fed’s target sooner rather than later,” said Obradovich. “This is the first time that inflation has gone down month over month since the height of COVID-19 in May 2020.” 

Unemployment also ticked up slightly, from 4% in May to 4.1% in June, according to the U.S. Bureau of Labor Statistics. That could give the Fed additional confidence to cut rates.

Obradovich now expects that the Fed could bring rates down twice this year, instead of just once.

"Today's report is good news, increasing the odds of an interest rate cut, likely at the Fed’s September meeting," Bright MLS Chief Economist Lisa Sturtevant said in a statement. "It is also possible to see mortgage rates come down even before the actual Fed rate cut if the central bank assertively telegraphs their intentions."

Mortgage rates have already come down a little. Sturtevant expects they will decrease further this fall.

Rates averaged 6.89% for 30-year, fixed-rate loans in the week ending July 11, according to Freddie Mac. That's down from 6.95% in the preceding week.

"Buyers are likely concerned that the high mortgage rates could last for 30 years," said Obradovich. However, as rates come down, "it will loosen up [housing] supply and increase housing affordability for more borrowers."