Market Update: Rates Hit Four-Month Low Following Cool Inflation News

Blog posted On July 11, 2024

Three cheers for the consumer price index (CPI)! This morning, the CPI for June showed that inflation is going down. As a result, MBS prices are significantly stronger, which has resulted in lower mortgage rate movement for the day. In fact, the drop has brought the average 30-year fixed mortgage rate to the lowest level since March. 

10-day winning streak for mortgage rates

Though today’s rate movement was sizeable, it wasn’t the only factor that brought average rates to a fresh four-month low. Rates have been steadily trending lower for the past ten consecutive days. Last week, the jobs reports were our saving grace that influenced rates to trend lower.  Some data showed that the jobs market was slowing, which ironically is good news for rates. This week, we have the CPI to thank.

Inflation is cooling down, and so are shelter costs

The CPI is the most widely used inflation report, giving it some extra weight when it comes to rate influence. When inflation was ticking higher in 2021-23, rates climbed as well. The two are typically correlated with one another. The Federal Reserve (and all those in favor of lower rates) has been keeping a close eye on inflation in recent years, just waiting for it to cool off. This morning gave us the news we wanted. The headline number declined 0.1%, which was lower than the expected 0.1% increase. Anytime big reports like inflation or jobs come in below economists’ expectations, it’s generally good news for rates. This decrease brought the annual level of inflation down to 3%. Target inflation is 2% annually. In more good news, shelter costs have started to come down according to the shelter CPI component. Shelter costs make up nearly half of the core CPI calculation, so the lower the shelter costs, the better. As long as this wasn’t an anomaly, and the trend continues, we could see the Fed talk more about rate cuts.

What this means for you

When it comes to mortgage rates, a slower economy is better. Signs of a slower economy include cooler inflation, smaller job growth, higher unemployment, etc. When the data comes in below expectations, mortgage rates typically respond by trending lower. With rates trending around four-month lows, here are some steps you can take:

1. Make sure you lock in your rate (if you haven’t already)
2. If you have locked in your rate, ask us about your one-time float down option
3. If you haven’t applied yet, now’s your time!

Whereas you might not have qualified before with higher rates, the story could be different with these fresh lows. Reach out to explore your options!

Sources: Mortgage News Daily