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Serious homebuyers should be on the lookout for a good time to lock in a lower mortgage rate–and now could be that time. The October inflation report has already pushed mortgage rates down to 7.4% from nearly 7.6% the day before.
Good inflation news. Headline inflation was unchanged from the month before in October. That’s down from a month-over-month rate of 0.4% in September, mostly due to gas prices coming down. Stripping away food and energy, core inflation was up 0.2% month over month (versus expectations of a 0.3% increase) and down slightly from 0.3% in September. Shelter inflation fell to 0.3% month over month, which is more in line with the readings we had been getting since the summer and shows that the surprising 0.6% increase last month was likely statistical noise. Given what we’re seeing in Redfin’s rental price data–it shows that U.S. asking rents have been sluggish since early 2023–we should expect shelter inflation to continue falling.
Easing inflation could drive down rent prices. The stagnation of rental prices is helping shelter inflation slow down. To take it full circle, inflation slowing down is likely to ease rental price growth even more. That’s because if slowing inflation helps bring mortgage rates down, demand to buy homes is likely to increase–which means demand for rentals is likely to decline, which would drive down rental prices.
The Fed is very unlikely to hike rates in December–and might cut rates earlier than expected. Combined with the weak jobs report we got on November 3, this really puts the nail in the coffin for a December rate hike from the Fed. Given the general tenor of the data recently, I’d say the July 27, 2023 hike was the final hike of this cycle. Even if the Fed doesn’t rule another one out