30-Year Rate Drop
The Federal Reserve is finally in agreement that inflation is heading towards their 2% target due to the better-than-expected June CPI (Consumer Price Index) inflation readings. The June CPI report showed that overall inflation was down -.01% for the month, which was less than the estimated .01% increase. Year over year, inflation decreased from 3.3% to 3.0%, which was lower than estimates of 3.1%. The Core rate, which removes food and energy prices, increased by .01%, which was also below expectations. Year over year, Core CPI declined from 3.4% to 3.3%, which was less than the anticipated 3.5% and the lowest reading since April 2021. The reaction in the bond market was positive with treasury yields falling to the lowest levels since early March 2024. Naturally, mortgage interest rates dropped with some zero-point, 30 year fixed rates falling into the 6.75% APR range. Anything below 7% APR is a welcome sign.
2% Target Is in Sight
As a result of the cooler than anticipated June CPI numbers, many of the Fed members seem in favor of a rate cut sooner than later. Prior to this reading, most Fed members were talking to the media about needing to be cautious about cutting their target interest rate, The Fed Funds, and some were even considering another rate hike. Chicago Fed President, Austan Goolsbee, said “The committee put out a statement saying we would not anticipate cutting rates until we were more convinced we’re on a path to 2%. My view is this is what the path to 2% looks like.”
Rate Cuts in September!
The markets are now predicting a 100% chance of a rate cut in September of this year. That would be the first rate cut in over 4 years, since the beginning of the pandemic.
By the time you receive this newsletter, we will have seen the results of the PCE (Personal Consumption Expenditures) inflation numbers, released on 7/26/24, as well as the conclusion of the July Fed meeting with their interest rate policy released on 7/31/24. PCE is the Fed’s favorite reading on inflation. If the PCE reading continues to support the lower inflation readings, there is a slight chance that the Fed give us the first rate cut on July 31st.
Once the Fed starts to cut the Fed Funds interest rate, look for a change in the bond market with treasury yields lowering further and at a quicker pace. Mortgage rates will come down in step with treasury yields. Prior to the better than anticipated June CPI inflation numbers, the market was anticipating one or zero Fed rate cuts this year. Overall, the good news is that inflation is heading towards the Fed’s 2% target, and we see some light at the end of the tunnel for mortgage rates.
Refinance Requests Will Boom
When the Fed rate cuts start going into effect, I will likely get inundated with mortgage refinance requests. There are roughly 10 Million borrowers who could benefit from a refinance by just lowering their rate, not to mention refinancing to take cash out of their property’s equity for home improvement and consolidating debt.
Inquire About Your Refinance Early!
If you have a rate greater than 7% mortgage rate or need cash out of your equity, please start reaching out to me ASAP so I can go over your numbers and get you in line. After the fallout in the mortgage industry from the last 2.5+ years of increased mortgage rates, banks and mortgage lenders are short staffed and will not be able to handle the sudden increase in mortgage refinance applications. Getting prepared early will ensure that you are at the front of the line and can close efficiently and with a rate that makes sense for your situation.
Rates Change Daily
Keep in mind that the bond market and mortgage rates are fluid and change from day to day. On volatile days, the changes can happen hour to hour. I am ready to get busy again and I have the staff, lenders, and tools to help everyone meet their mortgage needs.
As always, your mortgage guy,
Viral (Vic) Joshi
Home of Real Mortgage Advice®