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Inflation in the U.S. continued to cool last month, signaling imminent relief to homebuyers in the form of lower mortgage rates.
In the 12 months through July, the consumer price index rose 2.9%, according to data released by the Department of Labor on Wednesday. It marked the first time annual inflation has dropped below 3% since March 2021.
On a monthly basis, overall prices ticked up 0.2% from June, driven almost entirely by rising housing costs. Energy costs were flat on the month, and food prices rose modestly, ticking up 0.2% from June and 2.2% from one year ago.
For prospective homebuyers, the overall cooling of inflation toward the Federal Reserve’s 2% target is good news for mortgage rates, which have fallen in recent weeks. The central bank is now viewed as extremely likely to cut at least a quarter point from its current benchmark rate of 5.3% when policymakers meet in September.
Mortgage rates hit their lowest level in more than a year for the week ending on August 8, with the average rate on a 30-year fixed dropping to 6.47%, according to Freddie Mac.
Typically, mortgage rates follow yields on the 10-year Treasury note, which move in response to investor expectations about inflation, the economy, and future Fed rate moves. Yields on the 10-year swung between gains and losses in choppy trading following the new inflation data on Wednesday morning.
Realtor.com’s economic team projects average mortgage rates will fall to 6.3% by the end of this year.
“Economic signals suggest that the Fed should begin cutting its federal funds rate in 2024,” says Realtor.com Chief Economist Danielle Hale, adding that the cut should bring “long-awaited mortgage rate relief.”
Developing story, more to follow.