July Mortgage Interest Rates Forecast

Mortgage rates are likely to keep falling in August because inflation is slowing down.

The pleasing news is that mortgage rates have been trending downward since they crested for the year in April, when the 30-year fixed-rate mortgage averaged 7.04% in NerdWallet’s daily survey. The average rate slipped slightly lower in May, then dropped again in June and yet again in July, when it averaged 6.74%. August could mark four months in a row of falling rates.

Mortgages respond to inflation. When prices rise uncomfortably fast, mortgage rates go up, too. That’s what happened from early 2022 to late 2023. Now inflation is easing and mortgage rates are slowly falling.

The Federal Reserve’s favored inflation gauge, the core personal consumption expenditures price index, dropped from 4.3% in June 2023 to 2.6% in June 2024, according to the latest data available. The Fed’s goal is to achieve an inflation rate of 2%, and inflation seems to be on its way there.

Fed officials say they’ll cut the short-term federal funds rate when they’re convinced that “inflation is moving sustainably toward 2%,” in the words of Fed Chair Jerome Powell to a Senate committee in early July.

Financial markets believe the Federal Reserve‘s first rate cut will happen at its next meeting, which concludes Sept. 18. As of late July, prices in the federal funds rate futures market imply that a September rate cut is a virtual certainty, according to the CME FedWatch Tool.

Between the beginning of August and the next Fed meeting, the central bank will get a look at three important inflation measurements: the consumer price index for July and August, and the PCE price index for July. The case for Fed rate cuts will be strengthened if the inflation reports move in the desired direction.

A decline in inflation would also press downward on mortgage rates, which tend to move in anticipation of the Fed’s rate moves. This is the most likely course for mortgage rates in August. They probably won’t fall much, but mortgage borrowers will take any relief they can get.

The July CPI is scheduled to be released Aug. 14. If it delivers a nasty surprise of unexpectedly higher inflation, then investors will become less sure of a Fed rate cut in September, and mortgage rates could rise. As of late July, the Federal Reserve Bank of Cleveland was forecasting a core CPI of 3.33% for July. If it ends up at 3.5% or higher, mortgage rates could go up.

Shocking geopolitical events, or surprising political developments in the United States, could affect mortgage rates in either direction.

Fannie Mae, the Mortgage Bankers Association and the National Association of Realtors issue quarterly, not monthly, rate forecasts. All three organizations expect mortgage rates to fall less than a quarter of a percentage point in the third quarter.

Believe it or not, a few people might consider refinancing their mortgages. The reason: Rates have fallen more than one percentage point since last October to mid-November, when they were mostly above 7.5%.

Not a ton of people got mortgages with rates that high last fall. But for those who did, two questions arise: Can they refinance less than a year later? And should they?

The answer to the first question is yes. Most people who got mortgages last fall can refinance, whether they got a conventional loan or a home loan backed by the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA).

As for deciding whether this is a good time to refinance, the answer is complex. It depends on a number of factors: how much lower today’s rate is compared to the rate on the current loan, the amount of the closing costs, and how long one expects to own the home.