Washington
CNN
—
Mortgage rates continued to fall this week, easing some pressure on America’s strained housing market as the Federal Reserve steps up its efforts to keep the economy on track.
The standard 30-year fixed-rate mortgage averaged 6.09% for the week ending Sept. 19, Freddie Mac said Thursday. That’s down from the previous week’s 6.20% and well below the two-decade-old peak of 7.79% last fall. It’s the lowest since early February 2023.
The recent news on mortgage rates is an encouraging sign for buyers who have been waiting for housing affordability to improve.
A separate report from the National Association of Realtors released Thursday showed that used home sales in the U.S. fell sharply in August despite mortgage rates dropping sharply that month. But with mortgage rates continuing to fall, demand for homes in the market is likely to increase significantly after the Federal Reserve cut rates for the first time in four years this week — and announced more rate cuts through the end of the year.
Existing home sales, which make up the bulk of the market, fell 2.5% in August from the previous month to a seasonally adjusted annual rate of 3.86 million, NAR data showed. That was the lowest August sales level since 2010. Meanwhile, home prices continued to rise last month, with the median price for an existing home rising 3.1% to $416,700, marking the 14th consecutive year-over-year increase and a record for home prices in August.
“Home sales were disappointing again in August, but the recent trend of lower mortgage rates coupled with rising inventory is a powerful combination that will create the environment for increasing sales in the coming months,” Yun said in a press release.
Buying a home has become more difficult for millions of Americans in recent years. Mortgage rates rose after the Fed raised borrowing costs, and home prices soared as many markets struggled with housing shortages. That caused the housing market to falter last fall — and just as a recovery was beginning to take hold in early 2024, that momentum was interrupted because the Fed was forced to keep rates unchanged for much longer than previously expected to contain persistent inflationary pressures.
Now a new chapter has begun for the entire U.S. economy after the Fed on Wednesday made the first interest rate cut since the outbreak of the Covid-19 pandemic in early 2020. Fed officials expect their benchmark interest rate, which affects borrowing costs across the economy, to be half a percentage point lower by the end of the year.
It is quite possible that mortgage rates will fall even further, but only if economic data makes it clear that the Fed will cut rates even further.
The Fed does not control mortgage rates, but its actions affect them through movements in bond yields. Mortgage rates follow the 10-year U.S. Treasury yield, which moves in anticipation of the Fed’s interest rate decision. For example, when the July jobs report showed that wage growth was weaker than expected that month and unemployment rose, it sent yields lower because it meant the Fed was likely to cut rates soon. Yields have also fallen on news that inflation continues to ease.
“So far, buyers who have waited should be glad they did,” Daniele Hale, chief economist at Realtor.com, wrote in a note Thursday. “Not only have mortgage rates continued to fall through early September, but we are also approaching a seasonal sweet spot for homebuyers when competition typically wanes, home prices decline and time on the market tends to increase.”
Yun told reporters it could take three to four months for lower mortgage rates to boost demand for housing.
“Some people have to inform their landlord first and say, ‘I’m going to end my lease in a few months,’ especially first-time buyers, and then they look for a house, that whole process. I think that will take about three or four months, and since mortgage rates were already lower in July, that should start to show itself in October,” Yun said.
This story is evolving and will be updated.
