Uncertain inflation outlook leads to mixed predictions for June mortgage rates. Experts weigh in on whether rates will climb, fall, or hold steady. Let's find out in this article. The battle against inflation is a key player in the game of mortgage rates. The Federal Reserve, America's central bank, aims to keep inflation under control by adjusting its federal funds rate.
As of April 2024, the inflation rate in the United States was 3.4% for the previous 12 months, according to the U.S. Bureau of Labor Statistics. This is higher than the long-term average of 3.28%. The main contributors to inflation are currently shelter, motor vehicle insurance, and energy.
When inflation rises, as it has been recently, the Fed typically increases the federal funds rate to cool things down. This, in turn, often leads to higher borrowing costs across the board, including mortgages.
Will June 2024 See a Drop in Mortgage Rates?
Here's the crux of the matter: if inflation shows signs of slowing down in the coming weeks, it could signal a potential shift from the Fed. A decrease in the federal funds rate might pave the way for lower mortgage rates in June. However, experts caution that the path of inflation is rarely linear. Persistent inflationary pressures could lead the Fed to maintain or even increase rates, keeping mortgage rates elevated.
Market Predictions: A Glimpse into June
Financial markets are currently anticipating the first cut in federal funds rate by June or August 2024. This cut, if implemented, is expected to have a corresponding decrease in mortgage rates. The upcoming Federal Open Market Committee (FOMC) meeting on June 11-12 will be closely watched for any signs of a policy shift.
The FOMC holds eight regularly scheduled meetings during the year and other meetings as needed. These meetings are where the Federal Reserve makes decisions about monetary policy, including the federal funds rate.
If the FOMC signals a dovish stance, which leans towards lowering interest rates, it could bolster hopes for a more significant decrease in mortgage rates later in June or July.
Expert Opinions: Weighing the Possibilities
Real estate professionals are keeping a close eye on the situation. Some believe that a rate cut in June is likely, potentially bringing mortgage rates down to the 6.5% – 7% range. This aligns with the recent downward trend in Freddie Mac's Primary Mortgage Market Survey® (PMMS).
As of May 23, 2024, the U.S. weekly average for a 30-year fixed-rate mortgage (FRM) was 6.94%, which is a decrease of 0.08% from the previous week. However, it's important to note that this is still higher than the year-ago average of 6.57% and the 52-week average of 7%. Others hold a more cautious view, suggesting rates might hover around the current 7% mark for 30-year fixed mortgages in June.
So, Will Mortgage Rates Drop?
Experts are offering a mixed forecast for mortgage rates in June 2024, reflecting the ongoing uncertainty surrounding inflation. While some experts are cautiously optimistic about a decrease in mortgage rates for June 2024, the overall picture remains mixed. The key factor influencing rates is inflation, and its trajectory will largely determine the Fed's next move in its June meeting.
- Hopeful Signs: The financial markets are currently anticipating a potential cut in the federal funds rate by June or August. This, if implemented, could translate to lower mortgage rates. Additionally, a recent downward trend in Freddie Mac's PMMS data offers a glimmer of hope.
- Reasons for Caution: Even with a potential rate cut, experts predict mortgage rates might only dip to the 6.5% – 7% range, which is still higher than historical averages. Additionally, persistent inflation could force the Fed to hold steady or even increase rates, keeping mortgage rates elevated.
- Rates Likely to Stay Put: Several experts, including Molly Boesel of CoreLogic and Ralph DiBugnara of Home Qualified, anticipate rates will hover around the current low-7% range. They point to the Federal Reserve's cautious stance on rate cuts due to persistent inflation. While some, like DiBugnara, see a possibility of a rate cut later in the year, it likely wouldn't translate to significant reductions in June.
- Potential for Rate Drops: Odeta Kushi of First American offers a more optimistic outlook. She cites recent dips in Treasury yields and mortgage rates, potentially signaling a decrease if inflation continues to cool. However, her prediction hinges on inflation's trajectory, and a resurgence could force the Fed's hand to maintain higher rates.
- Upward Trend Not Entirely Out of the Picture: Rick Sharga of CJ Patrick Company warns that a Fed rate cut in June is highly unlikely. He anticipates rates will stay within the 7.0% – 7.5% range, potentially even nudging upwards slightly, as the Fed maintains its “higher for longer” strategy to combat inflation.
Overall, the consensus leans towards mortgage rates remaining relatively stable in June. However, the possibility of slight decreases or increases depends on how inflation behaves in the coming weeks.
The Bottom Line: Be Prepared and Stay Informed
The housing market, like any financial landscape, is inherently unpredictable. There are a multitude of factors that can influence mortgage rates, and their behavior can be quite dynamic. While June might see a dip in rates, it's equally possible that rates could hold steady or even increase.
Let's explore how a potential decrease in mortgage rates could translate into relief for homebuyers. It's important to note that experts are not necessarily projecting a drop to 6.5%. However, let's assume a scenario where a borrower is considering a $300,000 loan with a 30-year fixed term.
At a mortgage rate of 7%, their monthly EMI (estimated monthly installment) would be around $1,893. Even if rates decrease by a smaller margin, say to 6.75%, the EMI would decrease to approximately $1,854. This translates to a monthly saving of $39. Over the course of a year, this amounts to a saving of $468.
This additional breathing room can be used to direct funds towards other expenses or even increase the down payment on the house, potentially leading to a more favorable loan-to-value ratio and even lower monthly payments.
Here are some smart steps you can take:
- Get pre-approved for a mortgage: This will give you a clear picture of your borrowing power and how much home you can comfortably afford under different interest rate scenarios.
- Work with a reputable realtor: A good realtor will have a finger on the pulse of the local market and can guide you through the process considering current and potential rate fluctuations.
- Stay informed: Keep an eye on economic news and updates from the Federal Reserve. This will help you stay updated on the factors influencing mortgage rates.
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