Will Rates Go Down in July 2023?

Following a spike, interest rates had their biggest week-over-week drop since January.

The average 30-year fixed rate mortgage (FRM) fell from 6.96% on July 13 to 6.78% on July 20, according to Freddie Mac.

“Mortgage rates fell this week as economic data shows inflation cooled along with a moderation in US consumer spending. The latest inflation data eased pressure on bond yields, prompting mortgage rates to tick downward in recent days,” said Orphe Divounguy, senior macroeconomist at Zillow Home Loans. “Next week’s policy decision from the Federal Reserve is sure to bring more meaningful movements in rates.”

Mortgage rates fluctuated significantly to open 2023. In the first half, the average 30-year fixed rate went as low as 6.09% on Feb. 2 and climbed up to 6.79% on June 1, according to Freddie Mac.

The range can be largely attributed to the Federal Reserve’s ongoing fight against inflation, juxtaposed with uncertainty in the banking sector sparked by Silicon Valley Bank’s collapse. However, with duress permeating the financial market and the fallout from U.S. debt ceiling talks, the Fed may continue making hikes to bring interest rates down.

With the economy likely heading into a recession, it’s possible we’ve already seen the peak of this rate cycle. Of course, interest rates are notoriously volatile and could tick back up on any given week.

Experts from Beeline, CJ Patrick Company, National Association of Realtors, and others weigh in on whether 30-year mortgage rates will climb, fall, or level off in August.

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“I believe we will see the 30- and 15-year fixed mortgage rates increase based on the perception that the Fed will be raising rates at least two more times in 2033. Settling at 6.99% on 30-year and 6.25% on 15-year. Rates seem to be trending up over the last few weeks based mostly on the Fed holding off rate raise but promising more raises. With anticipation of the raise, I don’t see any huge move until the Fed speaks and clarifies where they currently see the United States trending for the remainder of the year.”

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“With mortgage rates at the upper end of their 2023 range headed into August, they are likely to drift lower in the month ahead. The June CPI data issued in mid-July showed striking improvement in inflation trends. While this is unlikely to deter the Fed from hiking its short-term rate at the end of July, progress on inflation could help the Fed sound more confident that its hoped-for economic soft-landing is in reach.”

“An optimistic tone from the Fed would set the stage for a gradual improvement in mortgage rates into August. Of course, uncertainties remain. The strong improvement in June CPI has raised expectations for the July data due out in mid-August. A smaller than projected improvement in inflation data mid-month could cause mortgage rates to reverse course and climb in the second half of August while a second lower reading could help accelerate the pace of decline.”

As inflation ran rampant in 2022, the Federal Reserve took action to bring it down and that led to big interest rate growth. The average 30-year fixed-rate mortgage more than doubled within the course of the year.

As inflation gradually cools, the size of the Fed’s rate hikes are coming down. Additionally, the likelihood of a recession has many experts believing mortgage interest rates will move within a tighter range compared to the spikes we saw in early 2022.

Of course, rates could rise on any given week or if another global event causes widespread uncertainty in the economy.

This article was originally published by Paul Centopani in www.themortgagereports.com