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Will mortgage interest rates fall in May?
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There’s no question that the mortgage rate environment has shifted dramatically over the last couple of years amid issues with stubbornly high inflation. While mortgage rates were hovering under 3% in early 2021, the resulting uptick in inflation sent the Federal Reserve on an aggressive rate hike campaign that caused mortgage rates to soar to over 8% by late 2023.
And, while the Fed’s moves have helped to temper inflation somewhat, we aren’t out of the woods just yet. The last couple of reports showed that inflation has been ticking back up, and the Fed rate is now paused at a 23-year high. In turn, borrowing rates remain elevated, and the average rate on a 30-year fixed mortgage is now 7.36% (as of May 1, 2024), over twice what it was during the height of the pandemic.
These sharply higher borrowing costs, coupled with today’s elevated home prices, have made purchasing a home much more expensive for buyers, as higher rates mean paying a lot more in interest on the money you borrow. Many would-be homeowners have, in turn, opted to put their plans on pause, hoping that mortgage rates would eventually drop and make homeownership more affordable. But will mortgage interest rates fall in May? Below, we’ll break down what you should know.
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Will mortgage interest rates fall in May?
Earlier this year, many experts forecasted that the Fed would start cutting interest rates by mid-2024 as inflation cooled and the economy slowed. This fueled expectations that mortgage rates could begin to trend lower in the coming months.
However, it now appears unlikely that mortgage rates will drop in May. At its May 1st meeting, the Federal Reserve opted to pause interest rate hikes and leave the federal funds rate at 5.25% to 5.50%, its highest level since 2001.
The decision to keep rates on pause was driven, in large part, by the latest inflation data, which showed consumer prices unexpectedly rebounded in February, when inflation was up 3.2%, and again in March, when the rate ticked up even higher to 3.5%. While these readings were still well below the peak of 9.1%, which occurred in mid-2022, they still raised concerns that inflationary pressures could be reaccelerating.
And, with inflation proving to be stickier than expected, the Fed has signaled that additional rate hikes aren’t off the table in the future if price pressures fail to moderate further. The central bank remains focused on returning inflation to its 2% target, and it’s likely to remain proactive until that point.
So unless upcoming inflation reports show a clear downward trajectory, it’s unlikely mortgage rates will decline substantially in May. In fact, mortgage rates could push even higher depending on future economic data and the Fed’s policy response.
Find out the best rates you could get on a mortgage loan right now.
How to get a lower mortgage rate in today’s borrowing landscape
While we may not see any significant mortgage rate declines this month, there may still be ways to secure a lower rate if you’re buying a home right now. Here’s how:
Buy mortgage points
You can “buy down” your mortgage rate by paying discount points upfront at closing or by having them rolled in to your overall loan. While it can vary by lender, one point typically equals 1% of the loan amount and generally lowers your rate by 0.25%. Buying mortgage points may require paying more upfront on your loan, but it can make sense if you plan to stay in the home long enough to recoup the costs through lower monthly payments.
Make a larger down payment
Lenders typically offer lower rates to borrowers who make a larger down payment, as this reduces their risk exposure. A 20% down payment is ideal, but putting down 25% or more can help you qualify for the most attractive rate pricing, depending on the lender and your overall borrowing profile.
Improve your credit score
Your credit score is a key factor in the mortgage rate you’ll receive. Higher scores signal less default risk to lenders. So, if you’re trying to secure the lowest rate possible, focus on paying down debts, fixing any errors on your credit report and avoiding any new credit inquiries to give your score a boost before applying.
Consider an ARM loan
An adjustable-rate mortgage (ARM) may offer a lower introductory interest rate compared to a 30-year fixed mortgage. However, the rate is only fixed for an initial period, after which it will adjust periodically based on market rates. That can make them a risky proposition for certain buyers, but ARM loans can still make sense for those who don’t plan to stay in the home long term, or for those who expect rates to decline in the future.
Shop around thoroughly
Not all lenders offer the same rates, fees and qualification standards. Getting quotes from multiple banks, credit unions and mortgage companies is crucial to ensure you find the most competitive rate and terms available based on your financial profile.
The bottom line
Rates are still hovering well above what they were just a few years ago, and with today’s Fed announcement, it seems unlikely that mortgage rates will drop in May. That said, there may still be ways for borrowers to secure a lower mortgage rate, even in today’s unique interest rate environment. That typically hinges on taking proactive steps and exploring all available options — and following the tips above may also help you make the most of today’s less-than-favorable rate environment.
These days, you’ll find Peggy Noonan in many places: in front of commencement crowds, at political round tables, and for the past quarter-century, in the opinion section of the Wall Street Journal. But when she was just starting out in Washington, D.C., you could find Noonan at the Off the Record Bar, near her job at the White House. “I would sit over there by myself, I would order a beer or a glass of wine, and I’d just quietly sit and read,” she said.
In 1984, Noonan joined President Ronald Reagan’s staff, after working at CBS in New York. At first, she felt like an outsider in the buttoned-up West Wing, but soon became an acclaimed speechwriter. Early on, she wrote Reagan’s moving speech for D-Day’s 40th anniversary.
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Then, when the Challenger shuttle tragically exploded, Noonan was given a tough assignment: write Reagan’s address to a distraught nation. “I had a feeling of, that didn’t work, nothing worked, because nothing was worthy of that moment; nothing was worthy of that day,” she said. “But then Frank Sinatra called – he called that night to the White House to say, ‘Mr. President, you just said what needed to be said.’ And Frank didn’t call after every speech!”
By the late eighties, Noonan had cemented a reputation as a wordsmith, and Reagan turned to her for his farewell address:
“We made the city stronger, we made the city freer. All in all, not bad, not bad at all.”
George H.W. Bush turned to Noonan, too, as he rallied Republicans on his way to the White House. “You know, part of life is luck,” she said. “It was not lucky to follow dazzling Ronald Reagan and be plainer, seeming sturdy George H.W. Bush. But I believe history was not – certainly in his time – sufficiently fair to him.”
That opinion is one of many found in the pages of her new book, “A Certain Idea of America,” a collection of her recent work (to be published Tuesday by Portfolio).
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Asked what her idea of America is today, Noonan replied, “Big, raucous, troubled, frayed.”
Noonan’s columns often delve into questions of character and leadership. “What I do not perceive now is many politicians who are actually saying, Guys, this is not good for the country. We’ve been given this beautiful thing called America. Shine it up! Keep it going!”
Costa said, “You have a lot of fun in this book, doing what you call taking the stick to certain people from time to time.”
“I don’t mind the stick at all,” said Noonan. “When I see something that I think is just awful, I love to get mad at it. I got mad at John Fetterman.”
“You don’t like that he’s wearing shorts?”
“It’s okay with me that he wears shorts,” she replied, “but he is not allowed to change the rules of the U.S. Senate to accommodate him in his little shorts and hoodie because he enjoys dressing like a child.”
Noonan, now 74, grew up in the Democratic strongholds of New York and New Jersey. “And I was very happy with that, because Democrats were cooler than Republicans,” she said. “Democrats were little Bobby Kennedy, and Republicans were, like, Dick Thornburgh!”
But in Reagan, she saw something fresh. “You looked at him, you saw his confidence, and it made you feel optimistic,” she said.
The Gipper, of course, no longer dominates the Republican Party, and President-elect Trump’s victory could transform the GOP even more in the coming years. “In terms of policy, the Republican Party has changed by becoming, not a standard, usual conservative party, but a populist party,” Noonan said. “Its issues have changed very much. But also, the edge of anger and resentment and, I’m afraid, a little paranoia that is in the Republican Party now would be something that Reagan did not recognize.”
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At the Off the Record Bar, the faces on the wall – caricatures of politicians of the past – and at the tables still catch her eye. For Noonan, it’s all part of the story – America’s, and her own.
Costa said, “In a way, you’re still the writer in the corner watching everybody at the bar in Washington.”
“Yeah, I like to watch them, she said. “They’re human, and you bring a little warmth to it, a little humor, and always bring your stick and smack them when you need to! It’s kind of nice.”
READ AN EXCERPT: “A Certain Idea of America” by Peggy Noonan
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Story produced by David Rothman. Editor: Joseph Frandino.
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