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The good news is that mortgage rates are moving a bit lower. The bad news is that it’s not because things are going so well.
The average interest rate on a 30-year, fixed-rate mortgage ticked down to 6.23% APR, according to rates provided to BW by Zillow. This is three basis points lower than yesterday and seven basis points lower than a week ago. (See our chart below for more specifics.) A basis point is one one-hundredth of a percentage point.
Throughout March, we saw the war in Iran push up mortgage interest rates. Mortgage rates track the bond market, and fears of inflation intensifying were making bonds’ fixed payouts a lot less appealing to investors. (If money’s not going as far, a bond’s yield isn’t worth as much.)
April has bond yields ebbing and mortgage rates starting to soften, but it’s not because inflation worries were unfounded. No, the narrative is shifting to one where higher prices for food, fuel and other vital goods throttle spending by consumers and businesses alike. The basic idea is that if the economy gets bad enough, we won’t see the Federal Reserve hiking rates to tame inflation — we’ll get rate cuts to bolster household and company borrowing.
What to expect from mortgage rates going forward will depend on the outlook on the home front as well as in Iran. For more, jump below the chart.
Average mortgage rates, last 30 days
📉 When will mortgage rates drop?
Mortgage rates are constantly changing, since a major part of how rates are set depends on reactions to new inflation reports, job numbers, Fed meetings, global news … you name it. For example, even tiny changes in the bond market can shift mortgage pricing.
We’re starting to get economic data — the stuff the Nerds focus on in normal times, since it often provides clues about where rates will go — that could begin to quantify the effects of the Iran conflict on the U.S. economy. These reports can be significant predictors of the Federal Reserve’s actions, since keeping the economy healthy is the Fed’s fundamental job. The central bankers attempt to do this by encouraging maximum employment (basically, a labor market where if you want a job, you can get a job) and price stability (keeping inflation in check so prices and consumer behavior are predictable).
Even though the Fed does not set mortgage rates, its actions ripple out through the economy. We often see mortgage rates head higher or lower on expectations of action from the Federal Reserve. If it doesn’t look like the central bankers will be in a rate cutting mood — and for this month’s meeting, it most certainly does not — we shouldn’t expect downward pressure on mortgage rates.
Last week, we got data on the employment front. The Bureau of Labor Statistics released the March jobs report April 3, revealing much stronger gains than expected (+178,000 vs. a projected +60,000). On one hand, yay. But on the other hand, the BLS collects data focused on the pay period that includes the 12th of the month, so really, we’re seeing a reflection of the first two weeks of the war.
“This labor market data is not showing any impact of the war in Iran, yet. Should the conflict continue, we will likely begin to see those effects on the labor market around May or June,” says Elizabeth Renter, BW Senior Economist.
“So this and the next jobs report will probably look like many of those in the recent past: mediocre — neither alarming nor impressive.”
The Federal Reserve is unlikely to view the not-alarming, not-impressive employment landscape as an imminent threat to the economy. Jobs can take a backseat to inflation, which isn’t just creating anxiety for the markets. Rising grocery and gas prices already have many Americans feeling financially stretched.
This week we’ll get two major inflation reports — the Personal Consumption Expenditures Price Index (PCE) on Thursday and Consumer Price Index (CPI) on Friday.
PCE is the Fed’s preferred inflation measure, but since the Bureau of Economic Analysis is still playing catch-up after last fall’s government shutdown, that data’s from February. At this point, February feels like ancient history. I couldn’t tell you what gas cost back then and honestly, I don’t want to remember.
The Bureau of Labor Statistics is all caught up though, and CPI will be March data. Any hopes for a spring rate cut from the Federal Reserve have already been extinguished. But if the CPI shows that the war in Iran is accelerating inflation, forget spring — the odds of a Fed rate cut this year will dwindle.
Refinancing might make sense if today’s rates are at least 0.5 to 0.75 of a percentage point lower than your current rate (and if you plan to stay in your home long enough to break even on closing costs).
With rates where they are right now, you could start considering a refi if your current rate is around 6.73% or higher.
Also consider your goals: Are you trying to lower your monthly payment, shorten your loan term or turn home equity into cash? For example, you might be more comfortable with paying a higher rate for a cash-out refinancethan you would for a rate-and-term refinance, so long as the overall costs are lower than if you kept your original mortgage and added a HELOC or home equity loan.
If you’re interested in securing a lower rate, you can use BW’s refinance calculator to estimate potential savings and determine how long it might take to recoup the costs of refinancing.
🏡 Is it time to start shopping for a home?
There isn’t a one-size-fits-all answer to this question — what’s important is whether you can comfortably afford a mortgage at today’s rates.
If the answer is yes, don’t worry too much about potentially missing out on lower rates in the future; you can always refinance later on. Focus on getting preapproved, comparing offers from different lenders, and determining a monthly payment that aligns with your budget.
Utilize BW’s affordability calculator to estimate your monthly payment. If buying a new home isn’t feasible right now, there are steps you can take to strengthen your buyer profile. Use this time to pay off existing debts and build up your down payment savings. Not only will this increase your cash flow for future mortgage payments, but it can also help you secure a better interest rate when you’re ready to make a purchase.
🔒 Should I lock in my rate?
If you’re satisfied with a quote you’ve received, it may be wise to consider locking in your mortgage rate, especially if your lender offers a float-down option. A float-down allows you to take advantage of a lower rate if the market fluctuates during your lock period.
Rate locks protect you from rate increases while your loan is being processed, providing peace of mind in a fluctuating market.
🤓 Nerdy Reminder: Rates can change daily, and even hourly. If you’re satisfied with the deal you’ve been offered, it’s okay to commit.
🧐 Why does the online rate differ from the quote I received?
The advertised rate is typically a sample rate meant for borrowers with excellent credit, substantial down payments, and who are willing to pay mortgage points. This may not align with every buyer’s specific situation.
In addition to external market factors, your customized quote is based on factors such as:
Even individuals with similar credit scores may receive different rates based on their overall financial profiles.
👀 Can I secure the rate I saw today if I apply now?
Possibly — but even personalized rate quotes can change until you lock them in. Lenders adjust pricing multiple times a day in response to market fluctuations.
