Inflation drop bodes well for mortgage industry

It's just a matter of when mortgage rates will fall

Inflation drop bodes well for mortgage industry

The inflation rate slowed to 3% last month, according to the Consumer Price Index released last week by the Bureau of Labor Statistics. But what does this potentially mean for mortgage rates?

Just in time for National Mortgage Brokers Day being observed today, Mortgage Professional America secured insights about potential implications for their industry. Per the CPI report, inflation has now eased for 12 consecutive months – and currently stis at its lowest rate since March 2021.

But what does it mean?

Rebecca Richardson (pictured top) of UMortgage posited the news as a welcome development: “It feels like everyone has been eagerly anticipating some positive inflation news so it was exciting to see the latest CPI data this week. Everyone involved in real estate, whether as a buyer, lender, or Realtor, has been waiting break in our favor because dealing with higher rates and historically low inventory has posed significant challenges,” she said.

But she cautioned any positive shifts aren’t likely to occur right away: “You know the saying, ‘Rates go up like fast like an escalator and slower down like stairs.’ That’s what I think we’ll see as we encounter levels of MBS resistance. It won't be an overnight change, but I think we'll start to see some relief in the coming months. Hopefully this provides some much-needed breathing room for both buyers and lenders,” she added.

More immediate effects anticipated

Daniel Solis (pictured below), co-founder of VA Wholesale Mortgage Inc., sees more immediate effects on the horizon: “I personally think we are going to see pockets of relief in the short term,” he said. “But mortgages have never been analyzed on the short term. It’s always on the long-term cyclical patterns.”

One thing of which he’s certain is the outlook for next year: “Based off a lot of opinions 2024 is going to be the year of a significant drop,” he added. “Again, my opinion remains the same: right now is a great time to buy.  When rates drop to the fives, get ready to see lines around the block of people waiting for open houses. I would rather buy now and refinance whenever I am able.  If I can financially afford the higher payment it’s only the icing on the cake when rates drop.”

Richardson’s colleague at UMortgage, Nate Fain (pictured below), also saw the latest CPI numbers as boding well for the industry. But he urged a curbing of enthusiasm as the Fed continues to bring inflation down to the desired rate of 2%.

“Any news or data indicating easing inflation is celebrated in our world,” Fain assured. “Historically, as inflation goes down, so do mortgage rates. Based on comments from the Fed, I don’t think we’re out of the woods yet – it sounds like more rate hikes are coming to get below the 2% level they’re looking for. However, this seems like a good step in the right direction.”

Despite the positive development, Fain and his team aren’t just waiting on inflation to drop but taking proactive steps to gain business: “Mortgage rates tend to go up faster than they come down, so our team has been focused on building our market share now instead of waiting on rates to inevitably go down,” he said.

Taking a more analytical approach

Melissa Cohn  (pictured below) of William Raveis Mortgage suggested it all rests on the Fed’s next step: “Predictions for the rest of the year seem to indicate that rates will remain elevated as we await the July Fed meeting on the 25th and 26th where the market still expects another 0.25% hike in the Fed funds rate,” she said.

“Mortgage rates tend to creep up in advance of any Fed meeting and can often rally lower after the meeting. With no Fed meeting in August, the markets will go back to data watching and hoping for signs of a cooling economy and labor market.”

The sweet spot will come by year’s end, she suggested. “Overall predictions call for rates to be lower by the end of the year,” she said. “The Mortgage Bankers Association is predicting that rates will fall back to the high 5s by the end of 2023, and down to 4.9% by the end of 2024.”

She noted the effect this will have on home sales: “As rates begin to decline, they [MBA] are also forecasting an increase each quarter in the number of homes sold and for home prices to increase. That doesn’t mean that prices have fallen much and in some areas are continuing to increase in spite of the rates due to low inventory.”

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