Will Cooling Inflation Finally Bring Lower Mortgage Rates?

Today's inflation report was better than expected, but it will take more time for mortgage rates to fall significantly.

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The Consumer Price Index for April, which measures changes in the cost of food, housing, gasoline, utilities and other goods, was slightly lower than what market and experts predicted.

Today’s inflation data shows prices rising by 3.4% over the past 12 months.

That figure will influence what the Federal Reserve decides to do at its next monetary policy meeting on June 11 to 12. After multiple rate hikes and months of holding interest rates at an elevated range, market watchers and borrowers have been waiting for the Fed to start cutting rates

Lower inflation affects mortgage rates, which have been a significant pain point in the housing market over the past two years.

While today’s data is a positive sign that things are headed back in the right direction, it’s probably not enough for the Fed to consider cutting rates until later in the year. Even so, we might see mortgage rates move a bit lower in the near term.

What today’s inflation data means for mortgage rates 

At the start of the year, experts hoped the first rate cut would come in early summer. 

Today’s CPI data marks the first time in three months that inflation has moved lower. But that doesn’t erase the disappointing statistics of the past few months. There’s been increasing concern that inflation is not returning to target and could potentially reaccelerate,” said Matthew Walsh, senior housing economist at Moody’s Analytics.

Fed officials aren’t convinced that price growth is contained. While lower interest rates aren’t entirely off the table in 2024, it’s going to depend on monthly economic data, both inflation and labor reports

“Inflation is the biggest, scariest issues for rates over the past several years,” said Matt Graham, chief operating officer at Mortgage News Daily. Inflation trends are dictating whether the Fed keeps rates restrictively high or starts loosening its policy by cutting rates.

Mortgage rates, though not directly tied to the Fed’s actions, tend to move in accordance with expectations for the economy and monetary policy changes. 

Average 30-year fixed mortgage rates were close to 6.5% in January, but a string of hot inflation readings and strong job reports helped push them back into the 7% range. Combined with high home prices and low housing inventory, today’s mortgage rates make it difficult for many prospective buyers to afford to buy a house. 

As inflation improves toward the Fed’s 2% annual target, mortgage rates should float lower.

A few months ago, it seemed likely that mortgage rates would fall close to, if not just below, 6% by the end of the year. Now, those expectations are a good deal higher. Fannie Mae’s latest forecast puts the average rate for a 30-year fixed mortgage at 6.4% to end the year.

“The outlook is a funny thing because no one knows where rates will be this time next year,” said Graham.

How can homebuyers cope with higher-for-longer mortgage rates?

Today’s high mortgage rates aren’t new for prospective buyers. Here’s how you can get the best mortgage rate for your situation.

Build your credit score. Working toward a credit score of 740 or higher will help you qualify for a lower rate.

Save for a bigger down payment. A larger down payment will allow you to take out a smaller mortgage and get a lower interest rate from your lender. 

Shop around for mortgage lenders. Comparing loan offers from multiple mortgage lenders can help you negotiate a better rate

Katherine Watt is a CNET Money writer focusing on mortgages, home equity and banking. She previously wrote about personal finance for NextAdvisor. Based in New York, Katherine graduated summa cum laude from Colgate University with a bachelor's degree in English literature.
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