Mortgage rates are at their lowest averages in two years, a shift that is bringing consumers back into the market.
The 30-year, fixed-rate mortgage, a common loan choice for homebuyers, averaged 6.08% as of Sept. 26. That’s lower than the previous week’s average of 6.09%, and it’s more than a full percentage point lower than the comparable week this time last year when it stood at 7.31%, the mortgage giant said Thursday. It’s the sixth consecutive week that the average has not increased.
The 15-year, fixed-rate mortgage, another common loan option for homebuyers, increased slightly, averaging 5.16%. That’s slightly higher than last week when it stood at 5.15%, but it’s lower than a year earlier when it was 6.72%.
Daily mortgage rates, often more volatile than weekly averages, had increased compared to the previous day as of Thursday afternoon. The 30-year, fixed-rate mortgage stood at 6.21%, according to Mortgage News Daily, while the 15-year, fixed-rate mortgage stood at 5.58%.
That means that if a borrower took out a 30-year, fixed-rate mortgage for $250,000 mortgage on Thursday, their monthly payment would be around $1,533.
The recent upward shift comes following the Federal Reserve’s decision to lower interest rates last week. It was the first time the central bank eased rates in four years. In the lead-up to that decision, mortgage rates plummeted, hitting their lowest rates in almost two years. There’s been a slight shift since then though, but it’s not necessarily unexpected or bad for the market, according to Matthew Graham, chief operating officer of Mortgage News Daily.
“Apart from the past two weeks, these are still the lowest rates since February 2023, and still sharply lower versus the late 2023 highs or even the highs from just two months ago,” he wrote in a post on Wednesday. “In many ways, the big drop in rates heading into the middle of September was indeed all about the market getting in position for the Fed's big policy shift. The correction seen since then is understandable and it should run its course fairly soon.”
Buyers and owners react
Despite that correction, homebuyers and homeowners have already started returning to the mortgage market.
Applications for mortgages increased by 11% in the week ended Sept. 20, according to the Mortgage Banker’s Association. It’s the highest demand for mortgages since July 2022.
That increase was mostly driven by a huge uptick in demand from homeowners to refinance their mortgage to a lower rate. On a weekly basis, refinance applications increased 20%, and compared to the same time a year earlier, applications jumped 175%, the industry group’s data showed.
It’s a trend that’s expected to continue, as “lower rates will entice more prospective buyers to enter the housing market this fall,” the group CEO, Bob Broeksmit, said in a statement.
Sam Khater, Freddie Mac’s chief economist, echoed Broeksmit and said he expects the surge in refinance activity also to continue.
“Given the downward trajectory of rates, refinance activity continues to pick up, creating opportunities for many homeowners to trim their monthly mortgage payment,” he said in a statement. “Meanwhile, many looking to purchase a home are playing the waiting game to see if rates decrease further as additional economic data is released over the next several weeks.”