Mortgage rates just dipped to their lowest since April 2023, offering a glimmer of hope to homebuyers who’ve been sidelined by high costs.
The Federal Reserve won’t announce its next move until September 18, but the market is already reacting.
The average 30-year fixed mortgage rate slipped to 6.44% last week, according to the Mortgage Bankers Association (MBA).
This drop comes as welcome news to potential buyers who’ve been waiting for a break. Rates had soared above 7% earlier this year, making homeownership a distant dream for many.
But now, with borrowing costs easing, mortgage applications are on the rise, signaling renewed interest in the housing market.
The decline in rates isn’t happening in a vacuum. Economic indicators, like a disappointing July jobs report, hint at a slowing economy.
These cracks in the economic armor are nudging mortgage rates down, even before the Fed’s next decision.
Joel Kan, MBA’s deputy chief economist, notes that while rates have fallen by over 80 basis points from a year ago, purchase applications remain steady.
“Prospective homebuyers are staying patient,” Kan observes, “especially as for-sale inventory starts to pick up.”
Looking ahead, economists are split on the Fed’s next move. While a rate cut seems likely, whether it will be 0.25 or 0.5 percentage points is up for debate.
Either way, Moody’s economist Mark Zandi suggests that rates could dip below 6% in the coming months, potentially giving the housing market a much-needed boost.
However, a shadow lingers in the form of the so-called “mortgage rate lock.” Many homeowners, who refinanced during the pandemic’s low-rate bonanza, are sitting tight with rates as low as 3%.
Even if rates drop below 6%, that’s still a far cry from what these homeowners are currently paying, making them reluctant to sell.
Zandi predicts that life changes—like new jobs or expanding families—will eventually push some to sell, especially if rates dip into the 5% range.
But how low will rates need to go to make these homeowners budge? That’s the million-dollar question for the housing business market.
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