Mortgage Rates, Inflation, and a Buyer-Friendly Market: How to Navigate Your Next Home Purchase

Recent economic shifts have left many homebuyers asking: Is this really the right time to buy a home?

In light of new inflation data, the answer isn’t black and white. But there’s good news—an increase in housing inventory and slower home price growth are tipping the scales in favor of buyers, even amid uncertainty about where mortgage rates may be headed. Here’s what all of this could mean for you if you’re looking to buy or refinance soon.

What Recent Inflation Data Means for Mortgage Rates

After a promising stretch of cooling inflation, October data shows that inflation nudged up slightly to 2.6%, compared to September’s 2.4%. This uptick has raised questions about how the Federal Reserve might adjust its approach to interest rates in the coming months.

While the Fed has recently reduced rates in response to easing inflationary pressures and a softer labor market, the increase in October inflation hints that the journey to stable, low inflation might not be as straightforward as we’d hoped.

In practical terms, this could affect mortgage rates because inflation and interest rates are closely linked. When inflation rises, interest rates often rise to maintain returns that outpace the erosion of purchasing power. If inflation continues to edge up, mortgage rates may follow suit.

The Fed’s recent rate cuts, including a 0.5 percentage point reduction in September and a smaller one in October, were part of a shift to stimulate growth and support economic stability.

However, if inflationary pressures persist, the Fed could pause or even halt future cuts, which would impact mortgage rates. While the Fed doesn’t set mortgage rates directly, its policies significantly influence them by shaping investor expectations and affecting yields on government securities, like the 10-year Treasury note, which often guides mortgage rates.

Increased Housing Inventory and Slower Price Growth Create New Opportunities

While inflation may impact mortgage rates, there’s a silver lining for buyers: the real estate market is showing signs of greater affordability. Recently, the supply of homes on the market has been increasing, which is a refreshing change after years of low inventory.

More available homes give buyers more options, meaning you can be a bit more selective without the pressure to rush into a decision.

Additionally, home price growth is slowing down, which could be a game-changer for affordability. In a more balanced market, sellers may be more willing to negotiate, and prices may stabilize, especially as more homes enter the market. This could provide some relief from concerns about rising mortgage rates, as the slower price growth could offset higher borrowing costs.

In short, if you’re buying a home soon, you may find a better balance between price and rate than we’ve seen in previous years.

Why Locking in a Mortgage Rate Now Could Be a Smart Move

With the recent inflation increase and uncertainty about future rate cuts, locking in a mortgage rate now could be a wise decision. When you lock in a rate, you’re securing your interest rate for a specific period, usually between 30 to 60 days, protecting you from future increases. This stability can be incredibly valuable, especially if inflation continues to drive rates higher.

Since mortgage rates are influenced by several factors—Fed policy, inflation, and lender expectations—it’s hard to predict exactly where they’ll land in the coming months.

However, by locking in your rate now, you’re effectively safeguarding your monthly payments from potential hikes. For those nearing the end of the home-buying process, locking in a rate can provide peace of mind and protect against unexpected cost increases.

Making the Most of a Changing Market

If you’re actively looking to buy, this is an opportune time to take advantage of the increased inventory and slower price growth while also considering a rate lock. Waiting for rates to drop further could be a risky strategy, especially if inflationary pressures persist, pushing mortgage rates higher.

For homebuyers or refinancers close to finalizing a loan, a rate lock could offer valuable protection against unexpected economic shifts.

Additionally, this environment could provide some negotiation power with sellers who may be more flexible given the increase in inventory and deceleration in price growth. A more balanced market allows you to consider options carefully and explore homes within your price range without feeling rushed.

Final Thoughts

The recent rise in inflation and the Federal Reserve’s uncertain path forward mean that mortgage rates could remain volatile. Yet, there’s a bright side: the increase in homes available and a slower pace of price growth may make this a favorable time to enter the market. By locking in a rate now, you can secure stability in your monthly payments while taking advantage of improved housing affordability.

While predicting the exact movements of mortgage rates is challenging, today’s market conditions provide a unique opportunity. With a bit of strategic planning, this could be an excellent time to make your homeownership dreams a reality.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.