Mortgage rates plunge to lowest level in 15 months
Rates are edging closer to 6%, but the downward trend still hasn’t translated into sales as potential homebuyers play the waiting game.
Key points:
- The 30-year fixed-rate averaged 6.35% this week, according to Freddie Mac. That’s the lowest level since May 2023.
- Pending sales fell 8.5% year-over-year in July, a sign that buyers are in a wait-and-see mode when it comes to rates, home prices and the election.
- Inventory remains higher than in recent years, so if buyers decide to act later this year, sales could rebound.
Mortgage rates fell steeply this week, landing at the lowest level in 15 months — but potential homebuyers haven't been responding with much enthusiasm.
The 30-year fixed-rate mortgage averaged 6.35% this week, according to the latest Freddie Mac survey. That's down from 6.46% and is the lowest level since May 2023. The 15-year fixed-rate averaged 5.51% this week, well below a year ago, when it was at 6.55%.
With rates likely to drop further following an expected rate cut by the Fed in September, a rebound in home sales remains elusive for now, said Sam Khater, Freddie Mac's chief economist.
No sales recovery yet
Despite a steady decline in mortgage rates throughout the summer, buyers haven't been motivated to sign contracts. Pending sales in July dropped 5.5% compared to June and fell 8.5% year-over-year, according to the National Association of Realtors. NAR's sales index — a forward-looking indicator of home sales — fell to 70.2 last month, the lowest reading in the index's 23-year history.
"A sales recovery did not occur in midsummer," said NAR Chief Economist Lawrence Yun. "The positive impact of job growth and higher inventory could not overcome affordability challenges and some degree of wait-and-see related to the upcoming U.S. presidential election."
It doesn't appear that pending sales are picking up in August, either: Redfin estimates pending sales are down 6.9% year-over-year for the four weeks ending Aug. 25. Rates and politics aren't the only factors causing buyers to hesitate, according to the report. They are also looking for clarity on the NAR settlement and hoping that home prices will fall after reaching record highs this summer.
The latest data on mortgage purchase applications showed a slight uptick from the week prior, but applications are down 9% year-over-year, according to the Mortgage Bankers Association.
What this means for inventory
Sellers may be taking note of this weak demand. The pace of new homes hitting the market is slowing and may have already peaked in Texas and Florida for the year. The rest of the country is expected to start seeing a seasonal decline in the coming weeks.
Inventory is higher heading into fall compared to recent years, so if the Federal Reserve chooses to make deeper rate cuts in September, that could lead to a late-year uptick in sales. The cut would need to be significant, however, since a modest rate cut is already priced in, said Ralph McLaughlin, senior economist at Realtor.com.
"As such, we shouldn't expect the downward movement in mortgage rates to accelerate unless worse-than-expected economic indicators suggest the market is headed for anything but a soft landing," McLaughlin said.