After months of observing a sluggish housing market, potential buyers may finally have a reason to engage: Borrowing rates are declining. The 30-year fixed mortgage rate averaged 6.35%, a decrease from 6.50% the previous week, as per reports. The decline in home borrowing costs occurs as the bond market indicates potential deterioration in the US economy, following new data that suggests the labor market is significantly weaker than earlier assessments indicated.
“In anticipation that the Federal Reserve will cut interest rates aggressively in the coming months to support the economy, investors have driven mortgage rates lower,” stated Kara Ng. The Fed does not directly determine the costs associated with home borrowing. Mortgage rates follow the movement of the 10-year Treasury yield, which decreased this week, reaching its lowest levels since April, a time when President Donald Trump’s tariff announcement raised concerns about an economic slowdown. The decline in mortgage rates could potentially revitalize a sluggish housing market, however. Discouraged by high mortgage rates, rising insurance expenses, and persistently high listing prices, more potential buyers are opting to remain inactive this year.
However, demand for mortgages reached a three-year peak last week, as both purchase and refinance applications increased, according to a report released on Wednesday by the Mortgage Bankers Association. Despite the decline in mortgage rates, the potential for improved affordability might be constrained, according to Lisa Sturtevant, as national home prices have persisted in their upward trajectory since the spring. “For genuine affordability improvements, we must observe a decrease in mortgage rates alongside significantly slower price growth, or potentially even declines in home prices,” she stated. Nonetheless, a decline beneath 6.5% in mortgage rates could create “an important psychological effect” on buyers, drawing them into the market, she stated. “The market is likely already pricing in a September rate cut,” said Erik Schmitt.
“It’s nearly impossible to predict exactly how rates will fare out in the future — mortgage rates don’t always react predictably to Fed decisions,” Schmitt said. For instance, when the Fed initiated its interest rate cuts last fall, mortgage rates surprisingly started to rise. For potential buyers, this indicates that a further decline in rates is not assured, regardless of the actions taken by the central bank.