Mortgage rates hovering around 6% — but now what?
Economists are divided over whether rates will continue to drop — and whether “the dam is going to break” and unleash a flood of buyers.
Key points:
- The 30-year fixed-rate averaged 6.09% this week, according to Freddie Mac. That’s the lowest level since February 2023.
- Applications for purchase and refinance loans jumped, but that hasn’t immediately translated into more pending sales.
- Affordability has improved, however, which could lure more homebuyers in the typically slower fall and winter months.
Mortgage rates fell significantly this week, but it's unclear if that trend will continue following the Federal Reserve's aggressive rate cut on Wednesday.
The 30-year fixed-rate mortgage averaged 6.09% this week, according to the latest Freddie Mac survey. That's down from 6.2% a week ago and is the lowest level since February 2023. The 15-year fixed rate mortgage dropped to 5.15%, well below 6.54% from a year ago.
Mixed views on where rates will go next
This decline in recent weeks has mostly been in anticipation of the September rate cut, but Sam Khater, Freddie Mac's chief economist, expects rates to fall further, reviving purchase and refinance demand for many consumers.
Other economists are skeptical. Orphe Divounguy, Zillow Home Loans senior economist, said that because the central bank is no longer a buyer of mortgage debt, he doesn't expect rates to fall much further.
"Yesterday's cut does not guarantee a steady fall for mortgage rates as we look ahead. Expectations for further rate cuts are already priced in, and if the Fed under-delivers as new data comes in, mortgage rates could rise again," Divounguy said.
And mortgage rates have crept up in the short time since the Fed announcement, according to Mortgage News Daily. It put the 30-year fixed-rate at 6.17% on Sept. 19, up from 6.11% on Sept. 17.
Ralph McLaughlin, senior economist at Realtor.com, expects rates to hover around 6% to 6.2% for the rest of 2024, but they could be in the upper-5% range by next spring.
"Since buying power increases as mortgage rates fall, we should expect home price growth to reaccelerate sometime in the spring, especially if historically laggy inventory is slow to respond," McLaughlin said.
Big jump in refinance applications
Applications for home financing increased significantly over the past week, mostly from those looking to refinance a loan, according to the Mortgage Bankers Association. The refinance index was up 24% from the previous week, while the unadjusted purchase index rose 15%. After trailing most of the year, purchase loan applications are now about even compared to a year ago.
"It is notable that conventional purchase applications increased to a pace ahead of last year, which also drove overall purchase applications very close to year-ago levels," said Joel Kan, MBA's deputy chief economist. "Homebuyers are seeing improving affordability conditions, sparked by lower rates and slower home-price growth."
Still waiting on pending sales boost
While mortgage applications are rising, pending sales have yet to improve, according to the latest Redfin report. One reason could be that prospective buyers are waiting to see how far rates fall before pulling the trigger.
"Buyers are holding their breath, watching interest rates. There's pent-up energy, with people waiting for the right moment to buy a home — and it's feeling like the dam is going to break soon," said Kristin Sanchez, a Redfin Premier agent in Nashville, Tennessee.
"Once things are more settled and people know where mortgage rates are going to land and who is going to be president, the market is going to get busier. I think winter will be busier than summer, which is the opposite of a usual year."
Perhaps more important is improving affordability. Redfin estimates the monthly median U.S. housing payment is down $300 from April's all-time high.