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As time goes on the light at the end of the tunnel seems to just get dimmer. We were set for 6 rate reductions from the Fed this year starting in March. Then inflation edged higher and it was dropped down to maybe 3 reductions starting in June. Now, March CPI came in at 3.48%, up from February’s 3.15%, moving further from the Fed’s desired 2% CPI level so now the word is maybe 2 reductions or maybe none at all this year.

So where does that leave us existing and wanna-be homeowners? Confused mainly. Many people have purchased homes, even at the current rates, as the experts believe that when rates go down, property values will increase. So if you can weather the storm at current rates, get a rate reduction or maybe an interest-only loan for now, when rates come down enough to refinance, you may be a winner.

The amount of the rate reductions completed is the key. If J. Powell follows suit and starts reducing rates he will likely start dropping them .25% at a time. There is a thing that mortgage lenders follow called NTB (net tangible benefit). You have to get at least a 2% reduction in rate for it to qualify. So if and when the Fed finally starts reducing rates, if they go .25% at a time, you will have to wait for 8 reductions from them, so you can get a 2% reduction from a mortgage lender.

If the Fed would get off their 2% goal and start dropping rates now, it will still probably be until the end of 2025 before you can refinance. If they stick to their guns on the 2% CPI they want, it might take a lot longer and, if CPI continues to increase, they may hit a point where they actually start raising rates again! Keep an eye on how rates, inflation, and treasury notes are trending (we send out a daily report on this for those who request it) so you know the market’s direction.

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