Mortgage interest rates forecast for July: Slight decline
Mortgage rates are expected to fall slightly in July as inflation eases.
I'm not talking about a sudden drop in interest rates. Imagine a gentle slope, like the uneven floor of a 150-year-old house, on which a dropped marble rolls slowly.
Mortgage interest rates appear to have peaked in May of this year. Although it won't be clear until the end of December, they have been trending downward. According to Freddie Mac's weekly survey, the average interest rate for a 30-year fixed-rate mortgage was 7.22% in the first week of May. It fell to 6.86% in the last week of June.
The gradual cuts in interest rates have been accompanied by a decline in the inflation rate. From March to May, the core consumer price index fell from 3.8% to 3.4%. When the inflation rate falls, mortgage interest rates also tend to fall. Therefore, if the inflation rate continues to fall, mortgage interest rates may continue to fall.
Listen to the Federal Reserve
The Federal Reserve wants to bring inflation down to 2%. To do so, the central bank raised short-term interest rates by 5.25 percentage points in 2022 and 2023. The rate hikes have paid off, with inflation falling through 2023. However, progress stalled in the first few months of 2024, prompting the Fed to postpone rate cuts.
Atlanta Federal Reserve Bank President Raphael Bostic said in late June that recent inflation data showed “some encouraging signs” and that prices were moving in the right direction.
“I've long argued that the path to 2% is going to be quite long, and it may take a bit longer than expected, given that inflation was falling sharply as we exited 2023,” Bostic said in his Quarterly Economic Review. He added that he thinks inflation could fall enough in the final three months of 2024 to justify a rate cut. But he can't promise anything.
A rate cut may not be cause for celebration
Lower mortgage rates don't necessarily mean everyone you know will be able to buy a home: The average resale price of a home hit a record high of $419,300 in May (the most recent data available), according to the National Association of Realtors. Meanwhile, the average mortgage interest rate in May was about 7%.
With a 20% down payment (admittedly more than most first-time homebuyers can save) and a 7% mortgage interest rate, principal and interest payments on a median-priced home would be $2,232. With these higher costs, home sales in May were down 2.8% from a year ago.
As buying slows, the inventory of existing homes for sale is increasing, according to Mike Simonsen, president of real estate analytics firm Altos Research, which means prices could soften, he said in his weekly market commentary on YouTube on June 25.
“With slightly more inventory and weaker demand, one would expect price reductions to increase, and in fact they are increasing,” he said, explaining that 36.9 percent of homes currently on the market have reduced their asking prices.
Home prices rise and fall seasonally, usually peaking in June, and if mortgage rates fall this fall, as expected, the combination of lower home prices and lower interest rates could make housing a little more affordable.
Other forecasters' predictions
Fannie Mae and the Mortgage Bankers Association are forecasting lower mortgage rates in the quarter starting in July. They project that 30-year mortgage rates will average 6.8% from July through September, down from an average of 7% from April through June, according to a survey by Freddie Mac.
What happened in June
The average rate on a 30-year mortgage fell to 6.82% in June from 7.01% in May, according to NerdWallet's daily mortgage rates survey. The most influential factor affecting interest rates was the May Consumer Price Index, which came in below market expectations.