The numbers are in. Inflation breaks 3%, YoY for July
Is it monumental? Well, yes actually. The inflation rate, due to COVID in June of 2022 rose to 9.06%! The Federal Reserve’s plan was to bring inflation back down to what had been normal, pre-pandemic, which was between 1% and 2%. It has slowly come down since then but hasn’t fallen below 3%, until yesterday, 7/11/2024.
At 2.97% you would think the market would approve, but while the DOW rose only slightly, Nasdaq and S&P dropped. Are people selling off profits from the recent rally? Well, if you look closer you will see that the CPI last year, June of 2023, was coincidentally identical to yesterday’s number. And last year, July, August, and September rose hotter each month above 3%. May’s CPI in 2024 was almost 1% less than May of 2023, so if you can divine a trend from this, while previous months 2024 vs. 2023 show larger inflation drops, they thinned to the point of being equal in June 2024. Perhaps we will see another rise in inflation over the rest of the summer months as debt acquired from travel and vacation comes due.
Of greater interest is the fate of mortgage rates in all of this. Many “experts” are now predicting rate cuts as soon as September. Others think the Fed may surprise us at the July 31st meeting. They are in a fantasy land. Jerome Powell has been consistent in his message as to what it will take to start reducing rates, and that is a 2% CPI. Most don’t realize that is the high side of normal inflation. He has taken heat for not raising rates soon enough. He doesn’t want to risk reducing rates too soon, creating a new inflation surge. MAYBE at 2.5% but likely not. He may just give in a 2.25%, but we know in his heart he wants to see 2%.
Also, even if the Fed reduces its rate, they will likely move in .25% increments, the way they raised it mostly, and after the first one will likely hold back for a few months to gauge its effect on the economy. I am afraid it is going to be a long road to the Fed reducing their rates sufficiently to impact today’s mortgage industry. Once they start dropping rates, it will likely take a few years for sufficient NTB (Net Tangible Benefit) to refinance someone’s loan. The government requires a minimum 2% difference in rate to allow it to occur (like/kind loans – moving from adjustable to fixed would be allowed. Moving from a 30-year fixed to another 30-year fixed would require at least a 2% better rate, so if you have a 7% loan today, you would have to acquire a 5% rate to pass compliance.
There are still opportunities, even in this uncertain market. Some mortgage holders are allowing their owners to transfer their loans, with their interest rate intact, during a property sale. Values are predicted to rise when rates finally fall, so buy now, refi later still has its merits. And finally, you are better off paying off your own mortgage than someone else’s. Renting neither builds equity, nor tax advantages, and your rental rate will always continue to rise.