Good news! The U.S. Bureau of Labor Statistics just revealed that inflation in May was lower than anticipated. What does this mean for you? It could lead to a decrease in borrowing costs, which have hit their highest levels in two decades! These soaring rates are not good news for the housing market and may make it difficult for many Americans to buy a home.
In May, the year-over-year Consumer Price Index (CPI) jumped by 3.3 percent, matching April’s figures. However, the Core CPI (excluding food and energy prices) only rose by 3.4%, a slower increase than expected. This slight pullback came as a surprise after April’s 3.6 percent rise.
Two years ago, the Federal Reserve started aggressively hiking rates to tackle the steep inflation rates peaking at 40 years high. Currently, mortgage rates stand at about 7 percent, twice what they were just four years ago.
The market welcomed May’s data with open arms, showing a recent slowdown in price hikes. Mortgage rates, often tied to the 10-year Treasury yield, dipped following the signs of easing inflation.
Experts predict that the drop in 10-year yields could influence mortgage rates. At 9:54 am EST, the 10-year yield had dropped by 10 basis points, nearly 2.8 percent from the starting point, as reported by Yahoo Finance.
The mortgage rates had hit a low range of 6 to 8 percent by the end of 2023, marking the lowest since the early 2000s. This downward spiral followed the Federal Reserve’s rate cuts in response to lower inflation rates.
However, the price spikes in the first quarter of 2024 dimmed hopes for further interest cuts. Central bank policymakers insisted on solid evidence of inflation heading towards their 2 percent target before considering rate reductions. Consequently, mortgage rates climbed to near 7 percent.
With upcoming producer prices data, experts are monitoring the progress of inflation. More data scrutiny is expected before the Fed’s meetings in September and late July. Positive results could help reduce economic hurdles and slightly lower borrowing costs.
News flash – Federal Reserve policymakers are meeting soon to discuss interest rates. Speculations hint they will keep rates steady at 5.25-5.5 percent, marking the seventh consecutive maintenance at the high levels.
Some economists predict a Fed rate cut as a response to May’s inflation data, aiming to tame high borrowing costs that are pricing out many Americans from the housing market.
The high mortgage interest rates have rendered homeownership unattainable for a significant percentage of the population. Lowering these rates could bring down construction costs, ramp up housing supply, and ease the inventory shortage that has fueled price hikes.
Our financial decisions and sentiments are heavily influenced by the state of the housing market. Seeing mortgage rates at 7 percent could deflate consumer confidence in the economy and their prospects.
