Why mortgage interest rates may drop again this week
It's been a long, bumpy road for homebuyers in recent years. Mortgage interest rates plunged in 2020 in response to a cut to the federal funds rate sparked by the pandemic. But they rose exponentially in the years that followed as inflation surged and the Federal Reserve issued a series of interest rate hikes aiming to keep it from rising further. Inflation was over 9% in June 2022 but it dropped to just 2.4% in September, the most recent report released showed. That's caused some minor interest rate relief for borrowers and resulted, albeit temporarily, in mortgage rates hitting a two-year low ahead of the Fed's September rate cut.
Last week, mortgages dipped slightly again as the Fed issued another rate cut, although it was just 25 basis points in their November 7 meeting. Still, any Fed rate cut is welcome, particularly after borrowers contended with the highest mortgage rates in decades. And the reductions are likely not over. There's a high probability that mortgage interest rates could fall again this week. Below, we'll explain why.
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Why mortgage rates may drop again this week
All eyes will turn toward the Bureau of Labor Statistics this week when it releases its inflation reading for October. The report, scheduled to be released on the morning of November 13, could show yet another drop in inflation or it could show a rise. Or, it may have plateaued, indicating that there's still some work to be done to get inflation exactly right.
A drop in the inflation rate, however, even if it's a minor increment, could encourage the Fed to continue its rate-cut campaign. After all, if inflation dropped in September (after a Fed rate cut was issued) and again in October ahead of November's cut, it could indicate that the economy has recovered and is in a strong enough position to endure additional rate cuts to come. And additional rate cuts will undoubtedly lead to lower mortgage interest rates, even if the connection between both isn't always direct.
Understanding this dynamic, then, borrowers looking to buy a home and homeowners looking to refinance their existing one should prepare to act promptly. And the emphasis in that sentence should be on "promptly." Remember that after mortgage interest plunged in September they rose by more than a point in October, without a Fed meeting on the calendar. While that rise was due to a combination of factors, it emphasized the importance of locking in a low rate when available versus waiting for a lower, ideal one in the future. So, if another opportunity presents itself this week, for many, it may be worth taking.
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The bottom line
The mortgage interest rates of 2020 and 2021 may never reappear but, if they do, it will be a gradual process to get them back there (minus a catastrophic economic downturn). Homebuyers and homeowners looking to refinance, then, shouldn't wait for a perfect circumstance that's unlikely to materialize.
Instead, both groups should monitor mortgage interest rates daily for an opportunity to capitalize on a below-average rate. This week could offer them one such opportunity. And while the rate they may be able to get now won't be as cheap as it was a few years ago, it can still potentially improve their financial situation. And they could always refinance in the future should rates adjust downward yet again.
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