Are you thinking about buying or selling a home? If so, you are probably paying attention to mortgage rates and wondering if they are ever going to drop. Many people have been expecting rates to drop for the past year and so far, they really haven’t changed a lot – up and down some, but not what many expected. So what’s going on?
One thing that does affect mortgage rates is the Federal Funds Rate. This affects the cost of borrowing for banks. The Federal Reserve doesn’t control mortgage rates but there is a close tie between the Federal Funds Rate and mortgage rates. The Fed meets next week and they will be looking at the inflation rate, jobs and the unemployment rate. No one expects the Fed to drop rates this month, but most expect them to drop rates in September.
The rate of inflation has been improving. The Fed wants to see the inflation rate back down to 2%. It’s not there but it is moving closer. The Fed is also watching the number of new jobs created each month. The reports for April and May were revised lower than initially reported. The report for June was still higher than expected but not by a lot. If employers are adding fewer jobs, it’s an indication that the economy is slowing down. The third piece they are watching is the unemployment rate. This is the percentage of people that want to work but can’t find jobs. The rate for June was 4.1%, the highest it’s been since November 2021.
So what does this mean? Mortgage rates have been somewhat stable the past month, slowly improving but not by a lot. There are signs that the economy is heading in the direction that the Fed wants to see before they will cut rates. While no one expects the Fed to cut rates in July, it will be the comments that come out after the meeting that could help mortgage rates. It’s always hard to time the market, there are many factors that can affect interest rates from world events, new economic reports and other factors. Mortgage rates tend to change based on what investors are expecting to happen, meaning that if the Fed says something next week that no one expects, it could affect interest rates. There have been times in the past where the Fed dropped rates by .25 point but we saw mortgage rates increase. The reason was usually because the statements from the Fed didn’t match want investors expected.
The bottom line is recent economic numbers show that it looks like the Fed may drop rates in September, most investors are expecting this. Many economists think that we could see lower mortgage rates this fall. However we did expect that this spring too, and it didn’t happen. So the reality is if you are looking at homes, try to get the best rate you can, but know that it’s very hard to know what the best rate is – until rates have gone back up! Also many expect that as rates do drop, home prices may go up due to multiple offers on homes. It may be the best time to buy now, knowing you can always refinance if rates do drop.
Leslie Vanderwerf, NMLS ID#335509, CrossCountry Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website
