The CPI inflation report for June was released Thursday, showing continued cooling of price growth in the United States. Consumer prices were down 0.1% month-over-month and the annual inflation rate cooled from 3.3% in May to 3.0% in June, which was lower than the 3.1% rate some economists projected.
That’s important because the inflation rate plays a significant role in the interest rates consumers pay to borrow money and earn when they deposit it. And, if you’re considering buying a home, it may be a sign that now is the time to act. Homebuyers have been dealing with elevated interest rates for much of the last few years, with rates surging to their highest point since 2000 in 2023. After Thursday’s report, however, the rate climate could be changing again. Below, we’ll break down what this cooling inflation means for homebuyers now.
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Why the new inflation report is good for homebuyers
Mortgage rates remain elevated. But, if today’s inflation report is any indication, they could fall soon. That’s because the Federal Reserve becomes more likely to cut its federal funds rate as inflation cools. And, a lower federal funds rate could push lenders to cut their mortgage rates.
“The Fed has stated they have a 2% inflation target,” explains Alex Blackwood, CEO and co-founder of Mogul Club, an alternative real estate investing platform. “With the cooling, we are approaching the 2% inflation target and closer to a rate cut.”
And, that could make homeownership more affordable. After all, lower mortgage rates typically produce lower monthly payments and can offer significant long-term savings. And, you may not have to wait for the Federal Reserve to cut the federal funds rate for those lower rates to materialize.
“The Fed meeting in July could give an indication of rate cuts in September, which would lead to pre-emptive lower rates for homebuyers,” says Blackwood.
The cooling inflation and potential for lower mortgage rates may also be a good thing for homebuyers from an inventory perspective.
“It may also prompt more would-be sellers to put their homes on the market,” explains G. Brian Davis, founder of the real estate investing club, SparkRental. “There’s been a well-reported ‘lock-in effect’ among some owners with low fixed-rate mortgages, who feel they can’t afford to move and get a new mortgage loan at double or triple the interest rate. Lower interest rates will help un-freeze housing markets by unleashing pent-up housing supply from would-be sellers who have felt stuck over the last two years.”
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Why now could be a good time to buy a home
The fact that mortgage rates will likely cool alongside inflation is exciting for prospective homebuyers. But, it’s not the only reason now is a good time to buy.
Less buyer competition
While there is buyer competition at the moment, that competition may be minimal compared to what could happen later. If inflation continues to cool and the Fed cuts rates, lower mortgage rates may entice potential buyers waiting on the sidelines to enter the market. And as they do, competition for homes will only rise. By acting now, you could avert increasing competition. Lower competition may give you better odds of purchasing your dream home. And, sellers may be more willing to negotiate prices.
Home inventories are rising
The low inventory of available homes has been a point of contention for homebuyers. When there’s a limited number of homes on the market, prices tend to rise and the probability of your offer being accepted can fall.
But, existing home inventory has been improving through 2024.
According to the Federal Reserve Bank of St. Louis, there were only 665,569 active home listings in the United States in January. But by June, that number had risen to 839,992. That’s a more than 26% increase in available homes over six months.
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The bottom line
Cooling inflation could usher in lower mortgage rates and boost existing home inventories. But, that’s not the only reason to act now if you’re considering buying a home. With less buyer competition than you may face soon, acting now could improve your chances of offer acceptance. And, as inventories grow, you may have access to more competitive home prices. Find out what your mortgage rate could be and take advantage of the benefits homebuyers are experiencing today.
