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Wednesday’s inflation report from the Bureau of Labor Statistics (BLS) revealed that inflation decreased in February to 2.8% from 3.0% the month prior. This shift in inflation broke a four-month streak of inflation increases, offering some hope that better days are ahead in terms of the inflationary environment.
What does Wednesday’s news mean for mortgage rates, though? While inflation does have an impact on the overall rate environment, the answer may not be as simple as you think. Inflation is just one of many factors that impact rates for home loans. The overall health of the economy, the Federal Reserve’s monetary policy and the housing and bond markets also play roles in where mortgage rates are headed.
That said, there are some things to know about what this drop in inflation could mean for mortgage rates.
Find out what your mortgage rate could be here.
Is the inflation drop good news for mortgage rates?
Generally speaking, the inflation drop from January to February is good news for mortgage rates, even if rates aren’t immediately headed downward. Jason Kindler, president of mortgage broker First Coast Mortgage Funding, says brokerages like his are happy with Wednesday’s inflation news, all things considered.
“Today since the news, mortgage rates have been pretty stable,” Kindle says, “Overall we like the sentiment that [inflation] is less than expectations.”
That being said, Kindler points out that homebuyers shouldn’t be surprised that rates haven’t fallen significantly. Economists believed inflation would be up 2.9% in February when, in reality, it rose 2.8%. When there’s a 0.1 percentage point difference between inflation expectations and reality, “we just don’t feel any real impact immediately,” Kindler says.
But, he says, mortgage rates could see a noticeable drop if next month’s inflation report shows a second straight month of costs declining.
“If the next CPI comes out next month and it’s looking a lot better for inflation, that will drive rates down,” Kindler says.
Steve Hill, a mortgage broker at SBL Lending, says inflation needs to ease over the long term before the Fed decides on rate cuts that could lead to significantly lower mortgage rates.
“In the long-term, lower inflation gives room for the Fed to lower rates, which is good news — but we’re talking weeks or months down the road,” Hill says.
Get started and compare today’s top mortgage loan rates now.
Where are rates headed for the rest of the year?
While you shouldn’t expect significant drops in mortgage rates right now, Kindler thinks rates could drop below 6% by the end of 2025.
Hill says he’d love to see rates get under 6%, but he’s conflicted about whether that will happen.
“I love it if we got under 5.99% by the end of the year,” Hill says. “However, do I expect that? I’d say 50/50.”
Should you buy a home now or wait for rates to drop even further?
In general, prospective homebuyers may not want to wait for rates to drop before buying a home.
Today’s mortgage rates are averaging 6.82% for 30-year fixed mortgage loans and 6.13% for 15-year fixed mortgages. While those rates aren’t as low as they were in September 2024, the average rates on 30-year fixed-rate mortgage loans have been dropping since hitting just over 7% in January.
It might be tempting to wait and see if rates will fall further later this year, but that’s a strategy that could cost you, Kindler says. If rates fall that low, homebuyers might face a competitive housing market flooded with potential buyers who were waiting for rates to drop before buying.
“If you’re ready to move and it’s in the budget, I don’t think the right call is to wait,” he says.
Hill also believes that waiting isn’t the best idea. With so many factors at play in mortgage rates, timing the market is difficult.
“If you’re ready to buy, go out there and find a home you love without being influenced by other factors, and realize that rates will come down eventually, whether it’s one to two years from now or more,” he says.
The bottom line
Wednesday’s inflation report is a positive sign for mortgage rates, as it signals, at least for the moment, that inflation is easing. That could lead to lower rates in the long term, but that’s not a guarantee since multiple factors influence whether mortgage rates rise or fall. For now, prospective homebuyers would do well to buy a home if their budget allows, as waiting for rates to drop even more than they have over the past two months may end up costing them in the form of higher home values and limited inventory.
