2 MIN READ
Published July 12, 2024
The recent dip in the Consumer Price Index (CPI) inflation reading for June has sparked optimism among homebuyers, indicating a potential reduction in borrowing costs by the Federal Reserve. The CPI dropped by 0.1 percent on a monthly basis and saw a year-over-year increase of 3 percent, down from May's 3.3 percent, per data from the U.S. Bureau of Labor Statistics.
Julia Pollak, ZipRecruiter's chief economist, noted, "For the first time since the pandemic, overall prices fell in June, surprising economists and increasing the likelihood of a September interest rate cut." This unexpected decline in inflation raises hopes for a reduction in mortgage rates by the end of the year.
Since March 2022, the Federal Reserve has aggressively increased rates to curb soaring inflation, which once reached a 40-year high. This hike led to a spike in borrowing costs, with mortgage rates peaking in October at their highest since the early 2000s, hovering around 7 percent in recent months.
As inflation shows signs of slowing, the central bank's target of a 2 percent inflation rate seems more attainable. Elizabeth Renter, a senior economist at NerdWallet, commented, "Today's numbers instill more confidence that inflation is headed towards the central bank's target. It makes the likelihood of a September rate cut all the more likely, and a July cut not entirely off the table."
Ralph McLaughlin, senior economist at Realtor.com, provided an encouraging outlook for prospective homebuyers, stating, "Expectation should be that we might start to see rates again come down by the end of the year." A drop in mortgage rates could coincide with an increase in the housing supply, offering buyers more options and potentially lower loan costs.
McLaughlin also advised patience, emphasizing that the Federal Reserve would likely reduce rates gradually. "The Fed has been very clear that they want to take the stairs down, not the elevator," he said. "What it means for the housing market, the future looks good, the glide slope looks great. They're on it, but they're on a very long path to landing."
This potential shift in the mortgage market could create a favorable environment for those seeking to buy their dream homes, especially if mortgage rates decline over the next one to two years.