Last week was one of the best week's we've seen for interest rates this year. 

Not only did rates DROP from where they were the week prior, but investors (and even the Federal Reserve) are finally starting to see the light at the end of the tunnel, thanks to better than expected CPI numbers. 

The average rate on a 30-year fixed rate conventional loan did fall slightly to 6.83% (down from 6.95% last week and the lowest rates have been since April 1, 2024). Make sure you're signed up for our weekly Friday rate texts. It could make a HUGE difference in your homebuying decision. 

Will we see the trend continue this week?

Inflation is back under control

After a hot start to 2024, it appears that the inflation fears are starting to be behind us. CPI report from Wednesday showed that inflation held FLAT in May (vs .1% expected) and increased 3.3% from a year ago (vs. 3.4% expected). Both numbers were 0.1 percentage point BELOW market expectations!
 
This is now the 3rd CPI report that came in at or below expectations, a positive trend for the Fed, as we know they won't start cutting without confidence that inflation is trending towards 2% annually.

The major contributors for the drop in inflation were gas and motor vehicle insurance. Unfortunately, shelter costs, which make up 1/3 of the consumer price index, was up a seasonally adjusted 0.4% in May for the 4th month in a row. 

It's difficult to see how shelter costs will come down when we continue to see home prices break record highs month after month, even in this high interest rate environment. Demand continues to be much higher than supply because of a massive inventory shortfall! We'll see how this continues to play out as a lot of housing data is set to come out this week!

Powell says to expect just 1 cut in 2024

While the inflation report was a big win for homebuyers and those hoping for lower interest rates, the Fed wants to temper expectations of just when to expect a rate cut - and for good reason.

At the end of 2023, the Fed was, in my opinion, TOO positive in where we stood in the fight against inflation. They were waving the "mission accomplished" banner before the mission was actually accomplished, touting 3 rate cuts in 2024, and the market made them regret their words.

This time around, I believe we will a Fed that's much more hesitant to confirm when any rate cut will happen in the back half of 2024 and early 2025. 

Now that's not to say rate cuts won't happen. If the next 3 inflation reports (July, August and September reporting) confirm a significant move towards 2% and the labor market continues to soften, I strongly believe the Fed will cut in September AND December - but we have a longgggg 3 months ahead of us before we'll see the Fed confirm rate cuts.

The good news, odds on a September rate cut shot up after last week's reporting. There's now a 64% chance of a rate cut will take place on September 18th. 

We're back to housing data reporting this week as Housing Starts and Existing Home Sales (and existing home sale prices) in May take center stage. I expect rates to tick up slightly this week unless retail sales number come in much lower than expected, showing that consumers may be tapping out!