Mortgage rates have dropped for the fourth week in a row, inching close to 6% for the first time since September 2024. Analysts believe the Federal Reserve may lower the federal funds rate by a quarter-point during their meeting on October 28-29. However, they will be working with limited data due to the ongoing government shutdown.
As of October 23, the average 30-year fixed mortgage rate stood at 6.04% APR, down four basis points, according to rates reported by Zillow. For reference, a basis point is just one one-hundredth of a percentage point.
Some Fed officials are in favor of further rate cuts. Fed Governor Christopher Waller expressed his support at the Council on Foreign Relations, noting the increasing economic activity and unemployment rates. He emphasized the Fed’s need to proceed cautiously.
Susan M. Collins, president of the Federal Reserve Bank of Boston, also supports lowering rates. In her recent address to the Greater Boston Chamber of Commerce, she pointed out that inflation risks are becoming more manageable, but rising unemployment remains a significant concern. Her views were reinforced by the latest Consumer Price Index data, which showed inflation at 3% over the last year—just below what many economists expected.
Waller mentioned that labor market conditions would likely play a crucial role in the Fed’s upcoming decisions. While a rate cut could push inflation slightly higher, the Fed may consider this trade-off worthwhile to combat the rising unemployment issue.
Despite reports of consumer spending being strong, there are concerns about how inflation might impact this spending. Many financial analysts contend that the current economic growth appears to be driven mainly by wealthier consumers. Moody’s Chief Economist, Mark Zandi, noted on social media that while the top 20% of earners increased their spending in recent months, those in the bottom 80% have barely kept up with inflation since the pandemic.
This divide is further highlighted in the housing market. Existing home sales increased by 4.1% in September, but most of this growth is occurring at the higher price end. According to Lawrence Yun, Chief Economist for the National Association of Realtors, home sales over $1 million rose by 20%, while those priced between $250,000 and $500,000 climbed only 10%.
For those looking to buy homes, even as rates fall, high prices and limited inventory remain challenges. Homeowners who bought their houses in recent years may benefit more from refinancing. For instance, if you purchased a home at a rate of about 7.32% in May 2024, switching to a 6% rate could potentially reduce your monthly payments by nearly $290 and save you over $66,700 in interest throughout the loan period, even after closing costs.
If you’re considering refinancing, it’s a smart move to shop around and secure a favorable rate quickly, as mortgage rates can shift without warning.
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