Where did rates end in the month of July?

30 Year Fixed Rate Conventional Average: 6.969% (0.430% decrease month over month)

30 Year Fixed Rate FHA Average: 6.779% (0.329% decrease month over month)

30 Year Fixed Rate VA Average: 6.896% (0.486% decrease month over month)

Disclaimer: The mortgage rates provided are sourced from a database reflecting lenders’ current pricing and fees for informational purposes only, not as an offer or commitment to lend. Rates are subject to change and may not apply to all borrowers. This information does not constitute financial or legal advice. Conventional rates are based on a $400,000 loan amount with 20% down payment and 740-759 credit score. FHA & VA rates are based on a $300,000 loan amount with 5% down and 740-759 credit score.

What Happened This Month in the Mortgage and Real Estate Space?

Unemployment Rate: In July 2024, the US unemployment rate was 4.1%, a 0.5 percentage point increase from June 2023. This is the highest rate since November 2021 but still within the range of a healthy job market. However, unemployment rates vary by state, ranging from 2% to 5.8% in June.

Consumer Spending: Fannie Mae reported that personal consumption expenditures (PCE) were downgraded to 1.5% annualized for Q1 2024, which is 1% lower than initially reported. Monthly personal consumption data showed that spending didn’t increase much in the second quarter, indicating a slowdown in consumer spending.

Consumer Debt: Total household debt in the US reached an all-time high of $17.3 trillion in June 2024, up by $184 billion (1.1%) from the first quarter of 2024. Credit card debt saw the largest increase, rising by 16.6% between Q3 2022 and Q3 2023. The average American's credit card debt was $6,218 in Q1 2024, with an average interest rate of 22.63%.

Interest Rates: The Federal Reserve kept rates unchanged in their latest meeting. Fed Chairman Jerome Powell's announcement on June 1, 2024, initially caused rates to drop for nearly two weeks before they started rising again. Elevated interest rates, driven by strong economic indicators, continue to impact borrowing and spending behaviors.

Election Season: Donald Trump is the Republican candidate for president, and Kamala Harris takes over as the Democratic nominee after Joe Biden steps down.

Federal Reserve Interest Rate Decision

Key Takeaways from the Latest Fed Meeting:

• Rate Cuts Expected: The Federal Reserve hinted at potential rate cuts in the coming months to reduce borrowing costs for mortgages, car loans, and credit cards. While rates are held steady for now, Fed officials are cautious about risks to the labor market.

• Inflation Progress: Fed Chair Jerome Powell highlighted positive inflation trends. The Personal Consumption Expenditures (PCE) index showed a 2.5% year-over-year increase in June 2024, down from 2.6% in May, approaching the Fed's 2% target.

• Economic Growth: The U.S. economy grew at a robust 2.8% annualized rate in Q2 2024, doubling Q1’s growth rate and surpassing expectations. Powell noted this “historically unusual” development as a key factor supporting the Fed's potential policy shift.

Labor Market Concerns:

• Employment Trends: The job market is cooling, with slower hiring, reduced labor demand, and decelerating wage growth. The unemployment rate reached 4.1%, the highest in over two years. Powell described this as a “gradual normalization” but emphasized the importance of preventing significant labor market weakening.

• Future Outlook: Powell stated that further cooling would need to be substantial to prompt a response from the Fed, highlighting the delicate balance in managing employment and inflation.

Economic Cycle and Consumer Behavior:

• Unusual Dynamics: The combination of slower inflation and stronger growth defies conventional economic wisdom, complicating predictions. The Fed’s efforts to cool the economy through high interest rates have had mixed effects.

• Consumer Spending: Major retailers report a shift in consumer behavior, with Americans becoming more cautious and prioritizing value. Despite this, overall spending remains robust, contributing to economic resilience.

These insights from the latest Fed meeting provide a comprehensive view of the current economic landscape, highlighting the interplay between inflation, interest rates, and the labor market.

Rate Cut in September?

Speculation and Insights: There is growing speculation about a potential rate cut in September 2024. While the Federal Reserve has hinted at this possibility, it's important to approach these forecasts with caution. Economic indicators, such as consumer spending and unemployment rates, will play a crucial role in this decision.

My Take on It: Historically, mortgage rate forecasts have proven to be unpredictable. In 2020, no one anticipated rates dropping to 2.5-3% due to the pandemic. Similarly, in 2022, forecasts underestimated the rate increase, which soared to 7.08% in October, far higher than the predicted 3.875%.

The lesson here is to be prepared for fluctuations. If you're planning to buy a home, make sure you're comfortable with your initial payment in case rates don’t decrease as expected. It's essential to do your research and stay informed about market conditions.