Lower inflation means lower mortgage rates for home buyers | Business

Just days ago Federal Reserve officials confirmed what the financial markets have been expecting, with a forecast predicting a series of interest rate cuts in 2024 as inflation continues to ease.

In fact, the central bank expects the federal funds rate, which it will determine, to fall in each of the next three years. Changes in the federal funds rate raise or lower the cost of borrowing for banks, which in turn influences interest rates for consumers.

An expectation of falling rates is encouraging news for potential homebuyers, and particularly first-time purchasers whose ownership dreams of have been crushed by a combination of soaring mortgage rates and sky-high home prices.

This time in 2021, according to Freddie Mac, the average rate on a 30-year mortgage was 3.12 percent. But years of unusually low rates that began after the Great Recession ended in 2022 as federal funds rate was increased multiple times to fight inflation. 

By mid-December 2022 the average 30-year mortgage rate was 6.31 percent. This year it hit 7.79 percent in October — the highest in more than two decades — before falling back to this week’s average of 6.95.

It’s easy for people to understand the price of a home, but the monthly cost of a mortgage depends on much more: the price of the home, the interest rate, the size of a downpayment and the borrower’s credit score.

Even if home prices today were the same as two years ago, the monthly cost of borrowing $300,000 at current rates would be $717 higher than in December 2021. That’s a $2,001 monthly mortgage instead of $1,284.

Of course, prices are higher now. I’ve seen homes selling in parts of the Charleston area for double what they sold for in 2018, though price increases this year have slowed dramatically. 

As of November, with 11 months of data in hand, the Charleston Trident Association of Realtors found that the median home sale price in the region had edged up just 1.4 percent compared to the same period in 2022. The bad news is, that mid-point home price was $404,671.

It’s hard to predict home prices, but falling mortgage rates could play a larger role in affordability. 

Here’s what a roughly $2,000 monthly home-loan payment would buy at different interest rates, not counting private mortgage insurance or taxes:

• At 7 percent (roughly the current rate): $300,000
• At 6 percent: $335,000
• At 5…