Waiting for Mortgage Rates to Drop? Here's Why You Might Have to Wait Longer

If you've been trying to buy a home, you may be at a point where you're ready to give up. Not only are home prices elevated, but it's been expensive to sign a mortgage for a really long time.

The good news is that the Federal Reserve is expected to start cutting interest rates at some point this year. Once that happens, mortgage rates may follow suit. But in light of new inflation data from March, the Fed may have no choice but to postpone its rate cuts, leaving homeowners in a serious lurch.

The Fed may not be ready to take action

The Federal Reserve spent a good part of 2022 and 2023 raising interest rates to cool inflation. While the central bank didn't go out and directly cause mortgage rates to rise, its actions indirectly drove up the cost of financing a home.

The Fed has noted that interest rate cuts are likely in store for 2024. But that'll largely depend on how inflation trends. And March's inflation data is a step in the wrong direction.

In March, the Consumer Price Index, which measures changes in the cost of consumer goods and services, rose 0.4% on a monthly basis. It also rose 3.5% on an annual basis.

Meanwhile, the Fed's target annual inflation rate is 2%. It's this rate, the Fed feels, that's most conducive to long-term economic stability.

Because annual inflation was measured at a higher level in March compared to February (3.5% versus 3.2%), the Fed may decide to hold off on rate cuts till the third quarter of 2024, or possibly even the fourth quarter. That could leave would-be home buyers in a tough spot if today's mortgage rates are making it impossible to afford a home.

How to score a more competitive mortgage rate

As of this writing, the average 30-year mortgage rate is 6.82%, says Freddie Mac. For a $200,000 mortgage, that results in a monthly payment of $1,306 for principal and interest.

Mortgage rates could start to creep closer to the 6% mark once the Fed's rate cuts begin. But unfortunately, those might now take longer to happen.

Still, all isn't lost. There are steps you can take to lock in a more competitive mortgage rate.

For one thing, try boosting your credit score. You can do so by paying bills on time, slashing your credit card debt, and checking your credit report for errors.

Also, shopping around is helpful. You may find that one lender is willing to offer you a lower rate than a competing lender in your area. Make some calls and put in applications with multiple lenders. But do so quickly -- ideally, within two weeks -- to minimize the likelihood of those hard inquiries damaging your credit score. (When you shop for the same type of loan, like a mortgage, in a short period, your various hard inquiries will often be counted as just one, which is a good thing for your score).

March's inflation report could be a setback on the road to interest rate cuts. But that doesn't mean rate cuts are off the table. It just means that consumers may need to sit tight a bit longer until they happen. Thankfully, though, you can take steps to save on your mortgage rate even if the Fed doesn't step in to help.