July Mortgage Interest Rates Forecast

Mortgage rates are poised to edge lower in July as inflation cools.

We’re not talking about a steep rate decline. Picture a gentle slope, like the uneven floor of a 150-year-old house, where a dropped marble rolls, but slowly.

It appears that mortgage rates peaked for the year in May. We won’t know for sure until the end of December, but the trend has been downward. The 30-year fixed-rate mortgage averaged 7.22% in the first week of May, according to Freddie Mac’s weekly survey. It fell to 6.86% in the last week of June.

The gradual rate decrease was accompanied by declining inflation. From March through May, the core consumer price index fell from 3.8% to 3.4%. Mortgage rates tend to drop when the inflation rate falls. So if inflation continues to diminish, mortgage rates might keep falling.

The Federal Reserve wants to push the inflation rate down to 2%. To that end, the central bank raised short-term interest rates by 5.25 percentage points in 2022 and 2023. The rate hikes delivered results, as inflation fell through 2023. But progress stalled in the first months of 2024, leading the Fed to postpone rate cuts.

The president of the Federal Reserve Bank of Atlanta, Raphael Bostic, said in late June that he finds “a few promising signals” in recent inflation data, and that prices are moving in the right direction.

“I have long maintained that the path to 2% would take considerable time; it just might take a little longer than one might have expected given how fast inflation was falling as we exited 2023,” Bostic wrote in a quarterly economic commentary. He added that he believes inflation might fall enough to warrant a rate cut in the final three months of 2024. But no promises.

Even if mortgage rates fall, it doesn’t necessarily mean that homes will become affordable for everyone you know. The median home resale price hit an all-time high of $419,300 in May (the latest data available), according to the National Association of Realtors. Meanwhile, the average mortgage rate in May was around 7%.

After a 20% down payment (admittedly more than a typical first-time buyer can save), and at a mortgage rate of 7%, the principal-and-interest payment on a median-price home was $2,232. With costs that high, home sales dropped in May — down 2.8% from 12 months before.

As buying has slowed down, the inventory of existing homes for sale has been going up, according to Mike Simonsen, president of real estate analytics firm Altos Research. And that means prices could be softening, he said in his June 25 weekly market commentary on YouTube.

“Slightly more inventory, weaker demand, you’d expect price reductions to be climbing — and in fact, price reductions are, indeed, climbing,” he said, explaining that 36.9% of the homes currently on the market have cut their asking prices.

Home prices rise and fall seasonally, and they usually peak in June. If mortgage rates go down this autumn, as expected, the combination of lower home prices and interest rates could make homes a bit more affordable.

Fannie Mae and the Mortgage Bankers Association predict that mortgage rates will fall in the quarter that begins in July. They both predict that the 30-year mortgage rate will average 6.8% from July through September, after averaging 7% from April through June in Freddie Mac’s survey.