Mortgage rates finally reacted to improving inflation by dropping, reversing several weeks of increases. Still, there was no relief from the low housing supply issue challenging homebuyers, according to Freddie Mac.

The average 30-year fixed-rate mortgage decreased to 6.78% for the week ending July 20, according to Freddie Mac's latest Primary Mortgage Market Survey. That's down from the previous week when it averaged 6.96%. A year ago, the 30-year fixed-rate mortgage averaged 5.54%. 

The average rate for a 15-year mortgage was 6.06%, down from 6.30% last week and up from 4.75% last year.

Last week, mortgage rates climbed to their highest point this year despite the positive inflation data for June. In June, the annual inflation rate dropped to 3% – its lowest level in more than two years, according to the Consumer Price Index (CPI) released by the Bureau of Labor Statistics (BLS). 

Buyers have grown more confident that rates are stabilizing within the 6% to 7% range and accepting it as the new normal. The biggest challenge currently is the lack of housing, which is contributing to climbing home prices, according to Freddie Mac's Chief Economist Sam Khater.

"As inflation slows, mortgage rates decreased this week," Khater said. "Still, the ongoing shortage of previously owned homes for sale has been a detriment to homebuyers looking to take advantage of declining rates. On the other hand, homebuilders have an edge in today's market, and incoming data shows that homebuilder sentiment continues to rise."

If you are looking to buy a home, you can take advantage of lower mortgage rates and shop for the best rate on a loan. You can visit an online marketplace like Credible to compare rates, choose your loan term and get preapproved with multiple lenders at once.

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The increase in borrowing costs is outpacing inflation, according to Keeping Current Matters Chief Economist George Ratiu. At the current average 30-year rate, borrowers would have to budget about a $2,300 mortgage payment for a median-priced home, a 13% premium compared with last year's peak-price period, Ratiu said. 

 "While many buyers have adjusted their purchase budgets downward over the past year, the tight supply of homes keeps upward pressure on prices," Ratiu said. "In many relatively affordable areas of the country, buyers are still contending with an unexpected return of multiple offers."

However, one bright spot is that the rebound in pricing during what is traditionally a busy summer season signals that seasonality is returning to the housing markets, according to Ratiu. That means buyers can expect home prices to be lower in the fall and winter seasons. 

If you are looking to take advantage of lower mortgage rates by refinancing your mortgage loan, or are ready to shop for the best rate on a loan, consider visiting an online marketplace like Credible to compare rates and get preapproved with multiple lenders at once.

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All eyes are now on whether the Federal Reserve will keep to its interest rate pause or raise them again at its upcoming meeting next week. 

The central bank has already raised rates 10 times in 2022 and 2023 to bring inflation down to a 2% target. In June, it announced a much-anticipated pause on interest rate increases following continued moderation in inflation. However, Fed chair Jerome Powell has hinted that another two rate increases could come before the end of the year because inflation remains above the 2% target.

"While the Federal Funds rate does not directly impact mortgage rates, it installs a floor beneath the cost of borrowing, meaning mortgage rates are likely to remain elevated for the time being," Realtor.com Economic Research Analyst Hannah Jones said in a statement. 

If you are ready to shop for a mortgage, you could get a better rate by looking at several lenders. Credible can help you compare interest rates from multiple mortgage lenders and choose the one with the best rate for you.

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