August mortgage rates may continue a long decline

Economists still hope that slowing inflation will continue to lower mortgage rates. Falling rates also mean it can be a good time to refinance.

New York - Mortgage rates are expected to continue falling in August as inflation slows.

The good news is that mortgage rates have been on a downward trend since they spiked this year in April, when the 30-year fixed-rate mortgage averaged 7.04% in NerdWallet's daily survey. The average rate fell slightly in May, then fell again in June and again in July, when it averaged 6.74%. August may mark four consecutive months of declining rates.

Mortgages respond to inflation. When prices rise uncomfortably fast, so does the interest on the mortgage. This is what happened from the beginning of 2022 to the end of 2023. Now inflation is fading, and mortgage rates are slowly falling.

The Federal Reserve's preferred gauge of inflation, the core measure of personal consumption expenditures, fell from 4.3% in June 2023 to 2.6% in June 2024, according to the latest data available. The Fed's goal is to reach an inflation rate of 2%, and inflation seems to be on its way there.

Fed officials say they will reduce the short-term federal funds rate when they are convinced that "inflation is moving sustainably toward 2%," as Fed Chairman Jerome Powell told a Senate committee in early July.

The Fed tracks inflation

Financial markets believe that the Federal Reserve's first interest rate cut will occur at its next meeting, which ends on September 18. As of late July, prices in the federal funds rate futures market suggest that a rate cut in September is a virtual certainty, according to the CME FedWatch tool.

Between the beginning of August and the next Fed meeting, the central bank will look at three important inflation measurements: the consumer price index for July and August, and the PCE price index for July. The case for the Fed's interest rate cut will be strengthened if the inflation reports move in the desired direction.

A decrease in inflation will also put downward pressure on mortgage interest rates, which tend to move in anticipation of the Fed's interest rate moves. This is the most likely course for the mortgage interest rate in August. They probably won't drop much, but mortgage lenders will get whatever relief they can get.

How this month's mortgage rate forecast could go wrong

The consumer price index for July should be published on August 14. If he delivers an unpleasant surprise of unexpectedly high inflation, then investors will become less confident about the Fed's September rate cut, and mortgage rates could rise. As of the end of July, the Cleveland Fed was forecasting a core rate of 3.33% for July. If it reaches 3.5% or higher, the interest on the mortgage may increase.

Shocking geopolitical events, or surprising political developments in the United States, can affect mortgage rates in either direction.

What other forecasters predict

Fannie Mae, the Mortgage Bankers Association and the National Association of Realtors publish quarterly, not monthly, interest rate forecasts. All three organizations expect mortgage rates to drop less than a quarter of a percentage point in the third quarter.

Some people may want to recycle

Believe it or not, some people may consider refinancing their mortgages. The reason: rates fell by more than one percentage point from last October to mid-November, when they were mostly above 7.5%.

Not many people got mortgages with rates this high last fall. But for those who do, two questions arise: Can they recycle less than a year later? And should they?

The answer to the first question is yes. Most people who got mortgages last fall can refinance, whether they got a conventional loan or a home loan backed by the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA).

As for deciding whether it is a good time to court, the answer is complex. It depends on several factors: how low today's rate is compared to the rate on the current loan, how much closing costs are, and how long you expect to own the home.

A mortgage refinancing calculator can help with the decision.

what happened in july

The average 30-year mortgage rate averaged 6.74% in July, down from 6.82% in June, according to NerdWallet's daily mortgage rate survey. Interest rates fell in response to favorable inflation data.