The fight against inflation will be a long one, but data from this week proves some progress is being made.
The Consumer Price Index, which measures the prices of food, housing, gas, utilities and other goods, rose 3% from a year ago, slightly lower than markets and experts had expected. Core CPI, which excludes volatile food and energy costs, rose 3.3%, below the 3.4% that economists had expected.
This week's Consumer Price Index report will influence when the Federal Reserve starts to cut interest rates, which will also have an impact on the housing market. Mortgage rates (the percentage of interest charged on a home loan) should gradually decline once the Federal Reserve starts to lower borrowing costs.
Thursday's data is unlikely to prompt a rate cut by the Fed at its next policy meeting in late July, but it should help make mortgage rates more affordable in the future.
“The case for a September rate cut is already growing,” said Keith Gumbinger, vice president at mortgage information site HSH.com. “Inflation only needs to take a step or two in the right direction by then for the Fed to feel confident about starting a rate-cutting cycle.”
Read more: Interest rate cuts likely before inflation hits 2%
How will today's inflation data affect mortgage rates?
Despite signs that the economy is gradually cooling, persistent inflation is keeping average mortgage rates above 7% through much of 2024. It's also altering the Fed's schedule of rate cuts, after it raised rates several times since 2022.
Earlier this year, experts predicted that there could be three interest rate cuts starting in early summer. At its last policy meeting in June, the Fed decided to keep its benchmark interest rate unchanged. The central bank also revised its outlook for rate cuts to just one in 2024.
Mortgage rates are not directly controlled by the Fed, but they fluctuate based on monetary policy and expectations for the economy and labor market.
For example, rising unemployment indicates a slowing economy and could give the central bank the confidence it needs to cut interest rates in September, according to Logan Mohtashami, principal analyst at HousingWire.
As inflation continues to improve and the economy stops overheating, mortgage rates should fall.
What will mortgage rates be like in 2024?
Financial experts are closely watching economic data on both inflation and employment to gauge when the Fed might make its first rate cut, and continued uncertainty about the direction of the economy in the coming months could lead to greater volatility in mortgage rates.
The Fed doesn't necessarily need to cut rates to lower mortgage rates — just signaling a willingness to lower borrowing costs would trigger a decline in the 10-year Treasury yield (the main benchmark for the average 30-year fixed mortgage rate) and mortgage rates.
“If all goes well, we could see the average interest rate on a 30-year fixed mortgage move closer to 6% instead of 7%,” said Jacob Channell, senior economist at LendingTree. But he cautioned that's by no means guaranteed.
Lower interest rates would provide a needed boost to a housing market that is seeing slowing home sales even as the spring homebuying season approaches.
“As time goes on and interest rates fall, we should see more activity from both buyers and sellers, but we probably won't see the market become particularly active again anytime soon,” Channell said.
How can homebuyers find lower mortgage rates right now?
The current interest rate environment, with the average 30-year fixed mortgage rate at around 7%, is creating uncertainty for potential homebuyers.
Because many factors in the housing market are outside of your direct control, the interest rate you qualify for will depend on more tangible factors.
Instead of trying to time the market, experts recommend focusing on improving your credit score, saving for a larger down payment and shopping around among different mortgage lenders for better terms.
Read more: 6 tips to get a 6% mortgage in a 7% market
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