Mortgage rates flirt with 6% — your move, Fed 

Mortgage rates tumbled this week, reaching the lowest level in more than 18 months. And other economic signals in recent days suggest that the Federal Reserve will almost certainly cut rates next week — but only modestly.

The 30-year fixed-rate mortgage averaged 6.2%, according to Freddie Mac, down from 6.35% last week. Rates haven't fallen below 6.3% since February 2023, and the daily average trended even lower on Thursday.

While homebuyers have an opportunity to save on borrowing costs — and potentially enjoy an advantage over those who wait until spring — the big picture hasn't seemed to change much yet: "Despite the improving mortgage rate environment, prospective buyers remain on the sidelines, as they negotiate a combination of high house prices and persistent supply shortages," said Sam Khater, Freddie Mac's chief economist.

Applications tick up, but high prices remain a barrier

Many buyers are still waiting, but falling rates may be encouraging some to act, as indicated by a slight increase in mortgage applications last week. Both refi and purchase applications edged up, according to the Mortgage Bankers Association, with purchase applications nearing levels from a year ago. 

But MBA VP and Deputy Chief Economist Joel Kan echoed Khater's comments, noting that the benefits of lower rates are offset by affordability challenges, which "might still be hindering purchase decisions."

Buyers could be seeing some relief in terms of home prices, however. While prices aren't likely to fall on a national level, the pace of growth slowed over the summer, with CoreLogic's latest Home Price Index showing no monthly gains in July. Price growth was still up 4.3% year-over-year, but CoreLogic forecasts that the pace will slow by nearly half in the coming year. 

Inflation, jobs and the Fed

The inflation numbers released this week showed a continued downward trend, with the Consumer Price Index landing at 2.5% in August — the lowest level since February 2021, and down from 2.9% in July.

Notably, however, the shelter component of the Index remains high at 5.2%, up slightly from the previous month, continuing to put pressure on renters and prospective buyers.  

The overall easing of inflation, combined with last week's weaker-than-expected jobs report, "reinforces the nearly 100% chance that the Fed is going to cut interest rates when they meet next week," said Bright MLS Chief Economist Lisa Sturtevant.

And that's good news for consumers with high auto loan or credit card rates — but less helpful for those in the housing market, Sturtevant said: "Prospective homebuyers expecting mortgage rates to drop dramatically after the Fed cuts rates will be disappointed. The impact of the Fed lowering short-term rates has already been largely baked into mortgage rates, which have been falling since early July."

A series of cuts?

But more analysts are now saying that the September rate cut — most likely 25 basis points — will just be the first of several, something that Federal Reserve Governor Christopher Wallace hinted at last week following the jobs report. 

"If the data supports cuts at consecutive meetings, then I believe it will be appropriate to cut at consecutive meetings. If the data suggests the need for larger cuts, then I will support that as well," Waller said.

Aditya Bhave, head of U.S. economics at Bank of America Securities, said he expects the Fed to cut rates by 25 bps at each of their next five meetings, and after the inflation data was released yesterday, Wall Street traders predicted the Fed could be even more aggressive, opting for "50 basis-point (bps) cuts in both November and January, with a smaller cut in December," Investopedia reported.

If multiple cuts are on the table, that could mean spring home shoppers will see rates below 6%. Mortgage rates in the mid-5% range are expected to bring more buyers into the market, so activity could heat up in 2025.