Washington () – Mortgage rates continued to fall this week, further easing pressure on the strained U.S. housing market as the Federal Reserve steps up its efforts to keep the economy on an even keel.
The standard 30-year fixed-rate mortgage averaged 6.09% in the week ending Sept. 19, Freddie Mac reported Thursday, down from 6.20% last week and substantially below the two-decade high of 7.79% reached last fall. It’s the lowest level since early February 2023.
The latest news on mortgage rates is an encouraging sign for buyers who have been sitting on the sidelines waiting for housing affordability to improve.
A separate report from the National Association of Realtors (NAR) released Thursday showed that sales of existing homes in the U.S. fell sharply in August, even as mortgage rates plummeted that month. But with mortgage rates continuing to trend lower, much more housing demand is likely to hit the market after the Federal Reserve finally cut interest rates this week for the first time in four years, and signaled more rate cuts by the end of the year.
Existing-home sales, which make up the vast majority of the market, fell 2.5% in August from the previous month to a seasonally adjusted annual rate of 3.86 million, according to NAR data. It was the lowest level of August sales since 2010. Meanwhile, home prices continued to rise last month, with the median price of an existing home increasing 3.1% to $416,700, the 14th consecutive year-over-year increase and a record for home prices in August.
“Home sales were disappointing again in August, but the recent decline in mortgage rates coupled with rising inventories is a powerful combination that will create the environment for sales to increase in the coming months,” Yun said in a statement.
Buying a home has become more difficult for millions of Americans in recent years, with mortgage rates rising after the Federal Reserve raised borrowing costs and home prices soaring as many markets struggled with a housing shortage. That sent the housing market into a slump last fall, and just as a recovery was beginning to take hold in early 2024, that momentum was cut short as the Fed was forced to hold rates on hold for much longer than expected to curb persistent inflationary pressures.
Now, the entire U.S. economy has entered a new chapter, after the Fed on Wednesday implemented its first rate cut since the start of the Covid-19 pandemic in early 2020. Fed officials expect their key interest rate, which influences borrowing costs across the economy, to be cut by half a point by the end of the year.
Mortgage interest rates could very well fall further, but that would depend on economic data making it clear that the Federal Reserve will cut rates further.
The Federal Reserve does not control mortgage rates, but its decisions influence them through movements in bond yields. Mortgage rates track the 10-year U.S. Treasury yield, which moves in anticipation of the Fed’s rate decision. For example, when the July jobs report showed payroll growth was lower than expected that month and unemployment rose, yields fell because it meant the Fed would likely cut rates soon. Yields also fell on news that inflation continued to moderate.
“So far, buyers who have waited can be glad they did,” Daniele Hale, chief economist at Realtor.com, wrote in a note Thursday. “Not only have mortgage rates continued to decline in early September, but we are also approaching the peak seasonal time for homebuyers, when competition typically slows, home prices soften and time on the market tends to increase.”
Yun told reporters it could take three to four months for lower mortgage rates to boost housing demand.
“Some people have to first inform their landlord, saying, ‘I’m going to be out of my lease in a couple of months,’ especially first-time buyers, and then they go looking for a home, that whole process. I think that will take about three or four months, so since mortgage rates already went down in July, that should start to show up in October,” Yun said.
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