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Another month, another discouraging inflation report.
That was the main takeaway on Wednesday when the Labor Department announced the inflation figures for September. Prices rose 0.4% from August to September while annual consumer inflation remained untouched at August’s 3.7% rate. Core prices, which exclude food and energy costs, and shelter costs all rose in the month.
With inflation still off from the 2% target goal, the Federal Reserve still has some work ahead. And with rates already at a 22-year high, that could mean more pain to come for borrowers. But what about homebuyers and those looking to refinance their existing home? Below, we’ll break down what the new inflation report could mean for mortgage rates.
Start by exploring your mortgage rate options here to see what you could qualify for.
How mortgage rates could be affected by the new inflation report
Higher inflation — or even inflation that remains unchanged — is generally not good news for mortgage rates. With today’s mortgage rates the highest they’ve been since 2000 (currently hovering close to 8% for a 30-year mortgage), it’s unlikely that they will fall any time soon.
That said, it’s unlikely that they’ll increase in October either. Any significant bump in mortgage rates is unlikely to come before the Fed meets again on October 31 and November 1. A bump to the benchmark interest rate following that meeting, however, will likely cause mortgage rates to increase yet again.
Against this backdrop, homebuyers may want to lock in a rate today. While rates are significantly higher than what they were in recent years, they could still be better than what’s to come. And while an 8% mortgage rate is no one’s idea of a bargain, it could be significantly lower than what’s offered by the end of the year — or even in 2024.
“It has become increasingly evident that rates will be ‘higher for longer’ as economic resiliency persists, and the Fed remains committed to bringing inflation in line with its long-term target of 2%,” Kelly Miskunas, senior director of capital markets at Better, recently told CBS News. “Until the market can comfortably assume the hiking cycle is over, we may see mortgage rates continue to drift higher through the early part of 2024.”
With that understanding, homebuyers may want to act now. See what rates you could qualify for here now.
Other options
While mortgage rates of 3% or less are unlikely to re-emerge soon, there are still some ways that buyers can get a below-average rate now. Here are two to know:
- Mortgage points: Mortgage points serve as a fee the buyer pays the lender to secure a lower rate (think: 8% without points and 7.75% with them currently). This fee can be paid upfront at closing or it can be rolled into the overall mortgage loan. While it won’t lower the rate dramatically, it could be worth it for some buyers, particularly those who are planning on staying in the home long enough to recuperate the costs of the points.
- Adjustable-rate mortgages: Adjustable-rate mortgages are exactly what they sound like — mortgages with rates that can adjust over time. While these can, and likely will, increase over time, they can be a great alternative for those looking to secure the lowest rate possible now. Plus, if rates do eventually increase, homeowners could always refinance their remaining loan into a fixed-rate version.
The bottom line
Inflation that’s rising — or even staying steady — isn’t good news for homebuyers. But it could be a motivating factor for those considering purchasing a home now. If they wait, an additional rate hike or two could completely price them out of the market. And there are still some ways to reduce today’s high mortgage rates, primarily by buying mortgage points or by applying for an adjustable-rate mortgage. They’re not perfect alternatives, but they could afford the purchaser some time until rates eventually come down in the months and years to come.
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