Mortgage rates have dropped to their lowest average in nearly six months, according to the latest data from Freddie Mac.
The 30-year, fixed-rate mortgage averaged 6.73% as of Aug.1, down from 6.77% the previous week, and lower than the comparable week this time last year when it stood at 6.9%, the mortgage giant said Thursday. It’s the lowest average since the week of Feb. 8.
The 15-year, fixed-rate mortgage averaged 5.99%. That’s down from last week when it averaged 6.05% and lower than a year earlier when it was 6.25%.
As of Thursday afternoon, the current 30-year, fixed-rate mortgage had also declined, settling even lower than the average at 6.62, according to Mortgage News Daily. The current 15-year, fixed-rate mortgage was also slightly lower on a daily basis at 6.15%. Thursday’s rate trend indicated the possibility of even lower rates by the end of the day.
The six-month low comes just a day after the Federal Reserve’s July meeting. While the central bank left interest rates unchanged, it signaled that it was preparing to lower rates come September. If the bank cuts rates, it would be the first change in more than two years, and the mortgage market could immediately feel the impact of cheaper debt.
Just the possibility of a rate cut was enough to move markets, Mortgage News Daily Chief Operating Officer Matthew Graham said in a post Wednesday.
“The Fed didn't cut rates today and rates then moved quickly lower. Naturally, there's more to the story than that, but the paradox is a good reminder that the market reacts in real time to things that won't happen for months,” he wrote. “The Fed's next meeting isn't until September, but a good amount of today's rate drop can be tied to expectations for future rate cuts. In fact, it's really the meetings beyond September that mattered more today.”
Borrower Apprehension
But despite investor and industry optimism, borrowers are still holding out and playing the waiting game.
In the week ended July 26, mortgage applications decreased 3.9%, according to the latest weekly data from the Mortgage Bankers Association. That overall decrease was driven by slowdowns in both refinance demand and purchase loan demand.
“Borrowers may be waiting for signs that mortgage rates will drift lower as the Federal Reserve begins to cut short-term rates,” Mike Fratantoni, the industry group’s senior vice president and chief economist, said in a statement. “Purchase volume also dropped slightly because of ongoing affordability challenges.”
Affordability is still sidelining some homebuyers: The most recent S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index showed that the cost of a house is 5.9% more expensive than a year earlier. Those barriers are keeping buyers out of the market, a possible upside for landlords and developers seeking to ease vacancy rates.
While there are positive signs for prospective buyers, it will likely take more than a drop in mortgage rates to lure them back to the market, according to Freddie Mac Chief Economist Sam Khater.
“Apprehension in consumer confidence may prevent an immediate uptick as affordability challenges remain top of mind,” he said Thursday in a statement. “Despite this, a recent moderation in home price growth and increases in housing inventory are a welcoming sign for potential homebuyers.”