On Fed Day, the Federal Reserve announced another hold for its benchmark federal funds rate. While many believe the central bank's actions influence mortgage rates, inflation plays a much larger role in determining the rates mortgage lenders offer. Coincidentally, significant inflation news was also released. The May Consumer Price Index (CPI) was released, showing that May prices were flat compared to April, an improvement from April's 0.3% uptick. Year-over-year inflation also dipped slightly from 3.4% in April to 3.3% in May, surprising economists who predicted a May increase of 0.1% and an unchanged yearly rate of 3.4%.
The Impact of Inflation on Mortgage Rates
The mortgage lending market is influenced by inflation, consumer demand, housing supply, economic strength, and the bond market, especially 10-year Treasury yields. While any downturn in inflation is good news for home buyers, inflation rates remain elevated. After hitting a 40-year high of 9.1% in June 2022, the Federal Reserve aggressively raised rates, resulting in a lower inflation rate of 3.0% by June 2023. However, inflation has since wavered above 3%.
Inflation's impact on mortgage rates is evident. When inflation readings in September and October were 3.7%, mortgage rates surged to their highest level in over 20 years. Rates later sank in February after inflation dipped to 3.1%, but then jumped again after a 0.3% increase in March.
Wednesday's inflation report was welcome news for those hoping for lower mortgage rates in 2024, though the immediate impact may be minor due to the slight dip from April to May.
Mid-Day Mortgage Rate Movement
At the time of publishing, mid-day mortgage rate movement showed a 9 basis point decline in the 30-year average, with a further drop of 16 basis points to 6.83% by 5 p.m. Eastern.
What 2024 Fed Decisions Could Mean for Home Buyers
The Federal Reserve announced that it's holding the federal funds rate at its current level. While Wednesday's inflation reading suggests a downward trend, the Fed needs more evidence of sustained inflation reduction before cutting rates. It's expected the Fed will hold its benchmark rate steady for one more meeting in July. According to the CME Group's FedWatch Tool, traders predict the first Fed rate cut will be announced at the Sept. 18 meeting, potentially leading to mortgage rate declines in 2024.
How We Track Mortgage Rates
The national and state averages are provided via the Zillow Mortgage API, assuming an 80% loan-to-value (LTV) ratio and a credit score in the 680–739 range. These rates are representative of what customers should expect when receiving actual quotes from lenders based on their qualifications. The latest inflation report offers hope for lower mortgage rates in 2024. While the immediate impact may be modest, the trend suggests potential rate reductions. With the Federal Reserve holding the federal funds rate steady, staying informed is crucial as the real estate market evolves. For personalized guidance and to navigate these changes effectively, contact Benson Group for expert real estate advice and support. ----------
Source: investopedia.com
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