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Homebuyers who missed out on historically low mortgage interest rates in 2020 and 2021 have faced exponentially higher rates since then. inflation and a concentrated effort by the Federal Reserve to tame it, the federal funds rate climbed last year to its highest level in decades. mortgage rates quickly followed, reaching their highest point since 2000.
However, as inflation has steadily declined since then, mortgage rates Prices have fallen slightly. They are already down about a percentage point from where they were in November 2023, for example. But there are reasons to believe that they could start falling steadily soon, perhaps as early as next August.
It’s critical that homebuyers living in a unique interest rate environment are well-prepared and understand this possibility. Waiting for an ideal situation could result in them ending up with a lower interest rate. To that end, we’ve rounded up three possible ways mortgage interest rates could drop in the coming month.
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3 Ways Mortgage Interest Rates Could Drop in August
Here are three potential scenarios – combined or individually – that could lead to lower mortgage rates in August.
Fed may discuss cut at July meeting
While the probability of a federal funds rate cut at the Fed’s next meeting on July 31 is low (less than 5% according to the CME FedWatch tool), that doesn’t mean rates won’t go down on August 1. Depending on what the Fed says after its meeting and what Federal Reserve Chair Jerome Powell says about the future of interest rates, lenders could adjust their offers to borrowers downward in anticipation of the upcoming rate cuts. While this adjustment will be marginal initially, it could still lead to significant savings through the lens of a 30-year mortgage. Borrowers should therefore be prepared to lock in a rate at that time.
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Inflation could fall again
The next inflation report is scheduled to be released on August 14 by the Bureau of Labor Statistics, detailing the inflation rate for July. And if this report is anything like the last three, which have all shown a fall in inflation – rates on mortgage products could therefore start to decline. It is important to remember that mortgage rates change daily, depending on a wide range of economic factors. While the August 14 report is encouraging, don’t be surprised to see rates decline on August 15.
Lenders can start preparing for an official rate cut
While a formal cut in the federal funds rate would guarantee lower mortgage rates, it doesn’t have to happen for lenders to start offering lower rates. Rates have already fallen nearly a full percentage point since last year, as noted above, while the federal funds rate has remained frozen.
But if encouraging economic signs multiply at the same time, lenders can and likely will begin preparing for a formal rate cut in September by lowering rates in August. And with CME FedWatch projecting a federal funds rate cut in the 5% to 5.25% range, mortgage rates could easily decline in the month before.
The essential
The long wait for a mortgage rate cut could soon be over in August. And while an official rate cut seems more likely in September, the events of August could lead to an early rate cut. For now, borrowers should start researching lenders, improving their creditworthiness, and understanding all of the mortgage rate options available to them (from adjustable-rate loans to point-based loans, etc.) so that they are fully prepared to act when a low-rate opportunity finally presents itself again.
