Mortgage Predictions: Inflation’s Comeback Isn’t Good for Homebuyers
The mortgage market has been calmer than usual in recent weeks, with interest rates Stable below 7% Since late January. However, potential homebuyers should be prepared for some turmoil.
The January consumer price index released Wednesday shows Inflation rose by 3% In the past 12 months, it has been higher than market expectations. Strong economic data tends to increase bond yields, which translates into Higher mortgage rates.
Everyone is looking at new data What affects the Fed Interest rate decisions in the coming months. After three cuts last year, the central bank said it is not in a hurry to continue lowering interest rates.
this Unknown impact Trump administration Experts’ tariffs and other policies that may be inflationary, complicating the outlook. The shift of high inflation from the Fed’s annual target of 2% to a longer period will make borrowing and interest rates higher.
according to CME FedWatch ToolThis tracks market expectations for interest rate adjustments, and the possibility of lowering interest rates next has been from May to July and even later. Some experts say higher than expected prices could put the Fed in its hands until the end of 2025 or early next year.
Although the Federal Reserve’s monetary policy decision Indirectly affecting the mortgage marketIn the long run, higher inflation and higher interest rates often translate into expensive mortgages for borrowers.
Tariffs, Fed and Interest Rates
Most economic forecasts require a gradual decline in mortgage rates in 2025, but that is not the case. Fannie Mae The average fixed mortgage interest rate for 30 years is expected to be Keep 6.5% Most of the year.
This prediction is Expectations for cool inflationthe labor market is weak, and central banks cut at least one or two tax rates, which does not seem imminent. There is also a threat of tariffs, which may be Housing Affordabilityput pressure on borrowing rates and building materials costs (such as wood) Used to build new homes.
Economists have a variety of opinions on tariffs and their impacts, and many point out that it is too early to predict the performance of the economy. Some say that as companies pass prices up to consumers, any possibility of heating a trade war will be inflationary in the long run, reducing the likelihood of the Fed’s mitigation rate. Others believe that tariffs only trigger temporary price increases, which will not affect the Fed’s cuts.
With inflation, the Fed is still weighing employment data. in the case of The job market remains strong According to official standards, the borrowing rate will definitely remain at a high level. Rate hikes are often used to slow down the economy, while lowering interest rates are often used to stimulate it.
However, if labor data weaken (for example, the unemployment rate increases), the Fed may lower interest rates. Logan MohtashamiHousingwire’s chief analyst still hopes the Fed will cut interest rates twice this year, but he has not significantly lowered mortgage rates.
“For major economic or labor concerns in 2025, rates will only drop by 6%,” Mohtashami said.
Most importantly, the Fed is likely to wait until inflation is under control or the job market is getting softer until any major moves are taken, which will put upward pressure on mortgage rates.
Expert skills for home buyers
It’s never a good idea to rush into Buy a house Don’t know what you can afford, so build a clear home budget. Here is what the experts suggest before buying a home:
💰Build your credit score. Your credit score will help determine if you are eligible for a mortgage and at what interest rate. one Credit Score At 740 or higher, it will help you get lower interest rates.
💰 Save a bigger down payment. Bigger down payment Allows you to take out a smaller mortgage and get a lower interest rate from the lender. If you can afford it, a down payment of at least 20% will also eliminate private mortgage insurance.
💰Shopping Mortgage Lender. Comparing loan offers from multiple mortgage lenders can help you Negotiate higher rates. Experts recommend getting at least two to three loan estimates from different lenders.
💰 Consider renting a house. choose Rent or buy a house Not only does it compare monthly rents with mortgage payments. Rentals offer flexibility and reduced upfront costs, but purchasing allows you to build wealth and have more control over the cost of housing.
💰 Consider the mortgage point. You can get a lower mortgage rate by purchasing Mortgage pointeach point costs 1% of the total loan amount. One mortgage point equals your mortgage rate to drop by 0.25%.
