After months of sitting out a sluggish housing market, would-be buyers may finally have a reason to jump in: Borrowing rates are tumbling.
The 30-year fixed mortgage rate averaged 6.35% for the week ending September 11, down from 6.50% last week, according to data released Thursday by Freddie Mac.
That’s the sharpest weekly drop in rates so far this year.
The fall in home borrowing costs comes as the bond market flashes signals that the US economy may be deteriorating more than expected, after new data suggested that the US labor market was much weaker than previously thought.
“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,” said Zillow senior economist Kara Ng.
The Fed doesn’t directly set home borrowing costs. Rather, mortgage rates track the 10-year Treasury yield, which fell this week, trading at the lowest levels since April, when President Donald Trump’s tariff announcement sparked fears of an economic slowdown.
The drop in mortgage rates may inject fresh energy into a stalled housing market, though. Turned off by elevated mortgage rates, surging insurance costs and stubbornly expensive listings, an increasing number of would-be buyers have chosen to sit on the sidelines this year.
But demand for mortgages surged to a three-year high last week, with purchase and refinance applications both moving higher, according to a Wednesday report from the Mortgage Bankers Association.
Even with mortgage rates falling, affordability gains may be limited, said Lisa Sturtevant, chief economist at Bright MLS, since national home prices have continued climbing since the spring.
“For real affordability gains, we need to see both a drop in mortgage rates and much slower price growth, or even home price declines,” she said.
However, a drop below 6.5% in mortgage rates may have “an important psychological effect” on buyers, enticing them into the market, she said.
The market is likely already pricing in a September rate cut, said Erik Schmitt, an executive at Chase Home Lending.
“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 example, when the Fed started to cut its interest rates last fall, mortgage rates actually began climbing. For would-be buyers, that means a further fall in rates is far from guaranteed, no matter what the central bank does.