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The annual inflation rate has cooled again, the Bureau of Labor Statistics announced Thursday. That rate dropped from 3.5% in March Unpleasant 3.4% in Aprilfollowed by today’s reading of 3.3% for May. And that may be good news for home buyers.
The inflation rate isn’t just important for understanding how fast or slow prices are rising in the United States. It also plays a meaningful role in the movement of interest rates.
The Federal Reserve will conclude its June Federal Open Market Committee (FOMC) meeting later today. That’s the meeting where the Fed discusses the state of the economy and any changes it deems necessary in monetary policy, such as potentially rising or falling interest rates. And today’s inflation data and the results of the FOMC meeting could have a meaningful impact on homebuyers. So, what can you expect from the future if you are looking for a new home?
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What new inflation data means for homebuyers
Inflation data is an important statistic for home buyers to keep an eye on. That is because Changes in inflation can lead to changes in mortgage interest rates. What does cooling inflation mean for home buyers?
Interest rates could fall in the coming months
The Federal Reserve’s Fed Funds Rate is currently at one 23 years high. Lenders often take this benchmark into account when determining the consumer interest rates they offer. The Fed pushed its benchmark to such a high level (via a series of several rate hikes) following post-COVID-19 inflation after inflation rose 9.1% in June 2022.
Today’s inflation numbers represent a meaningful slowdown in that pace. And while it’s unlikely the Fed will cut the Fed rate this month, that doesn’t mean it will stay high forever, especially in light of continued cooling inflation rates. Some expect a cut could come in September, which could be a good sign for mortgage rates now and in the future.
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Lenders can now start lowering interest rates
While it’s unlikely the Fed will cut rates this month, that doesn’t mean mortgage lenders will wait to cut their rates. Mortgage interest rates change regularly and the slightest news can make a meaningful difference in those rates.
With inflation cooling for the second month in a row, lenders may already be planning to cut mortgage rates in an effort to attract new buyers. And if the Federal Reserve even hints at a cut in the federal funds rate in the near term, the likelihood that lenders will cut mortgage rates will only increase. So there could be good news on the horizon for homebuyers.
It’s time to start shopping
With the prospect of falling mortgage rates in the near term, you may wonder whether you should sit on the sidelines until that prospect becomes a reality. But that could be a mistake. As mentioned above, lenders may soon start lowering interest rates. And if that happens, buyers who have been waiting for lower rates may enter the market, which could increase your competition. So it may be wise to do that start buying houses now.
Moreover, it can be a good idea to also start looking for lenders now. Keep in mind that lenders could lower their interest rates following today’s inflation report and upcoming statements from the Fed. So, shop now gives you the opportunity to have a lender when you find the home for you and take advantage of those lower rates when they materialize.
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it comes down to
Inflation has cooled for the second month in a row and that could be good news for homebuyers. As inflation cools, lenders can start lowering mortgage rates. But you shouldn’t wait too long before acting. This will only lead to more competition on the buying side, which could drive up house prices. Instead, start purchasing a mortgage and your dream home now to stay ahead of the competition.
