Mortgage interest rates have been on a downward trend since Thanksgiving. As of the week ending Dec. 12, the average rate on a 30-year fixed-rate mortgage dropped by eight basis points to 6.51%, according to data from Zillow provided to BW. A basis point is equivalent to one-one hundredth of a percentage point.
For those hoping for a slight decrease in mortgage rates, there may be good news on the horizon. The latest Consumer Price Index (CPI) report, released on Dec. 10, revealed a 2.7% increase in annual inflation for the 12-month period ending in November. This aligns with expectations and solidifies projections for a 25-basis-point cut to the federal funds rate at the upcoming Federal Reserve meeting on Dec. 18.
While the federal funds rate does not directly impact mortgage rates, it does have an influence. This rate represents the interest that banks pay to borrow from each other overnight, which they use to fund large transactions like mortgages. When banks anticipate a decrease in borrowing costs, they often lower their lending rates for consumers.
It’s important for home shoppers to note that mortgage rates can move in anticipation of Federal Reserve actions, rather than in direct response. While rates may see a slight decrease in the remaining weeks of the year, it’s unlikely to be significant enough to prompt potential buyers to make a move during the holiday season.
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Making the most of a slower season
During the holiday season, the real estate market typically experiences a lull as potential sellers focus on festive decorations rather than listing their homes for sale. While inventory may be limited, this can be a less competitive time for buyers looking to purchase a house in the coming months. With fewer competing buyers, sellers may be more willing to negotiate on price.
Having negotiating power could be crucial for buyers seeking to afford a home, especially as future rate cuts are uncertain. In a report on Dec. 11, Realtor.com’s chief economist Danielle Hale suggested, “I anticipate an additional quarter-point rate cut at the next week’s meeting; however, the latest inflation data indicate a more cautious approach going forward, with fewer rate cuts expected.”