Mortgage rates have fallen to their lowest point in three weeks, driven by a downward trend in bond yields following encouraging news on inflation. The Bureau of Labor Statistics reported a slight easing of inflation in June, rekindling hopes that the Federal Reserve may hold interest rates steady at its upcoming September 16 meeting. Market indicators, such as the CME FedWatch tool, currently show a 65.4% probability of the central bank maintaining current rates.
The Consumer Price Index (CPI) reading, along with an anticipated cooling in the upcoming Personal Consumption Expenditures (PCE) inflation report—the Fed's preferred gauge—are contributing to this optimism. Analysts at Oxford Economics expect the PCE report, due in two weeks, to indicate a further moderation in inflation after a surprising June reading.
Mortgage rates typically track the yield on the 10-year U.S. Treasury note. This yield has seen fluctuations, influenced by geopolitical events and economic indicators. The recent move to a lower rate, 4.64% as of this writing, is partly attributed to hopes for a resolution in international conflicts and the potential for an uptick in unemployment, which could prompt the Fed to reassess monetary policy.
This decrease is a welcome development for prospective homebuyers who have faced elevated rates for years. Data from Freddie Mac indicates the average rate for a 30-year mortgage was 6.67% as of August 12, a slight dip of two basis points from the previous week. Mortgage loan applications have responded positively, increasing by 3.6% week-over-week on a seasonally adjusted basis, according to the Mortgage Bankers Association.
"After five consecutive weeks of increases, mortgage rates declined slightly last week as oil prices dipped briefly on the hopes of a sustained resolution to the war in Iran," said Joel Kan, Vice President and Deputy Chief Economist at the Mortgage Bankers Association. "The reprieve in rates supported an increase in both purchase and refinance applications over the week, although the pace of applications has fallen below last year’s pace in recent weeks."
However, some experts caution that the current positive trend may be preliminary. Brian Shahwa, Vice President of Mortgage Banker & Broker at Melissa Cohn Group, described the July CPI report as "good news for mortgage rates, but not a game changer." He noted that a significant impact for homebuyers will likely depend on a decisive resolution to energy supply concerns in the Strait of Hormuz.
Sarah DeFlorio, Vice President of Mortgage Banking at William Raveis Mortgage, echoed this sentiment, stating, "We will continue to monitor data, as the on again, off again nature of the conflict in the Middle East may have a latent impact on inflation." She added that persistent or increasing inflation would generally lead to higher mortgage rates.