Breaking Mortgage Update: Inflation Eases, Mortgage Rates Dip Below 7%

In a positive development for potential homebuyers, the U.S. inflation rate slowed to 3 percent last month, marking its slowest pace in two years. This decline in inflation has had a direct impact on mortgage rates, with the average rate on 30-year mortgages dropping to 6.88 percent this week from 7.07 percent the previous week, as reported by Bankrate’s weekly national survey of major lenders.

As markets responded favorably to data indicating the cooling of U.S. inflation, mortgage rates experienced a decline. Joel Kan, the deputy chief economist at the Mortgage Bankers Association, confirms the decrease in rates and attributes it to the recent moderation in inflation.

While the Federal Reserve took a pause from its inflation-fighting efforts last month, there is an anticipation that the central bank will resume rate increases during its upcoming meeting. The mortgage market closely follows the Federal Reserve’s actions, as the central bank’s policies guide the broader market, although fixed mortgage rates are not directly set by the Federal Reserve. Instead, the most relevant benchmark for mortgage rates is the 10-year Treasury yield, which has been experiencing fluctuations in recent weeks.

According to Orphe Divounguy, a senior economist at Zillow, further disinflation in the coming months is expected to support additional downward movements in Treasury yields. As Treasury yields tend to influence mortgage rates, this could lead to further modest reductions in mortgage rates.

For prospective first-time homebuyers, the current mortgage rates as of July 26, 2023, present an opportunity to explore homeownership with a more favorable interest rate environment. As the Federal Reserve deliberates its future rate actions, market dynamics and economic indicators will continue to play a crucial role in shaping the mortgage landscape.