This week, mortgage rates fell to their lowest level since this time last year. The Interest rate for a 30-year mortgage is currently at 6.51%, down from 6.74% last week.
“Mortgage rates plunged this week to their lowest level in over a year following the likely overreaction to a less than favorable employment report and financial market turbulence for an economy that remains on solid footing,” said Sam Khater, Freddie Mac’s Chief Economist.
The inflation report will be released this week and will guide the FED for their next meeting on September 17th. Many economists believe September will be the first reduction of their rate, and are expecting them to lower it 25-50 basis points.
Generally, mortgage companies will add 3% to the FED rate. The FED rate is currently at 5.25% to 5.50%. Mortgage companies have to remain competitive, so when demand drops, they offer lower rates.
A 6.5% interest rate will probably be the best rate we see in 2024. Mortgage lenders seem to have already adjust their rates downward with the expectation of a FED rate cut in September.
The Consumer Price Index peaked above 9% in June 2022, which led the FED to respond with consecutive interest rate hikes that concluded in July 2023. Mortgage rates rose to over 7% in September of 2022 and by the end of 2023, were nearing 8%.
While inflation has cooled, it has remained higher than the FED’s 2% target, which has led them to keep its benchmark rate elevated. In their July meeting, the FED held their rate firm, but indicated that a rate reduction is possible in September 2024.
The FED doesn’t set mortgage rates, but when inflation is high, they increase their short-term interest rate to slow the economy. Mortgage rates tend to increase or decrease based on many factors, including the bond market, investor expectations, inflation and the FED’s monetary policy decisions.
August began with lower numbers on manufacturing and construction. Additionally, a weaker than expected jobs report led many investors to fear the possibility of a recession. While the stock market soared into record territory in 2024, it dropped significantly at the beginning of August.
Many were expecting the FED to step in with an emergency rate cut. However, the stock market recovered on its own. While rates are holding steady around 6.5%, it is unlikely rates will fall below 6% before 2025.
Steep home prices and limited inventory are still presenting a challenge for homebuyers. However, a 2% reduction in an interest rate equals a monthly payment of $115 for every $100,000 borrowed on a 30-year home loan. Lower rates mean lower monthly payments, which can increase the amount you are qualified to borrow.
Inflation, jobs reports and the FED rate shouldn’t be the driving force of whether or not you buy a home. It is difficult to time the housing market and it is important to have your finances in order, so you can shop around for the best mortgage rate.
Contact me today for more information about the real estate market in Truckee and North Lake Tahoe.
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