Mortgage rates are falling despite the Federal Reserve’s reluctance to introduce new cuts over the past eight months, giving American homebuyers more purchasing power at a time when the market is slowly shifting in their favor.
Last week, the 30-year fixed-rate mortgage—the most popular home loan in the nation—dropped to its lowest level since April. As of August 7, according to Freddie Mac, it was at 6.63 percent, down from 6.72 percent a week earlier but still up 0.16 percentage points from a year earlier.
While mortgage rates remain historically high, especially compared to the pandemic lows of below 3 percent, for homebuyers waiting on the sidelines for a good time to enter the market, any movement away from the 7 percent mark is a positive shift.
Why Have Mortgage Rates Made a Dip?
“Although the Fed has not yet cut its policy rate, mortgage rates and other long-term rates move in anticipation of what’s ahead for the economy and the likely policy environment,” Realtor.com chief economist Danielle Hale told Newsweek.
In this case, the July jobs report has likely determined the recent dip in mortgage rates.
The report showed that U.S. employers added 73,000 jobs last month, fewer than the 109,000 forecasters had expected, and unemployment rose from 4.1 percent in June to 4.2 percent. Hiring figures for May and June were also revised down, with a combined total of 258,000 fewer jobs over the past three months than previously estimated.
“The fact that the July employment report showed weaker job growth, downward revisions to prior job growth estimates, and an uptick in the unemployment rate has reset expectations among investors,” Hale said. “The Fed is now widely expected to cut its policy rate at its meeting in mid-September. This combined with a softer economic outlook has helped nudge longer-term interest rates, including mortgage rates, lower.”
The weaker-than-expected jobs report has also caused Treasury yields to tumble last week, as concerns over the future of the U.S. economy were revamped among investors, who are now betting that the central bank will cut interest rates next month.
“Mortgage rates react to the bond market,” Melissa Cohn, regional vice president of William Raveis Mortgage, told Newsweek. “Bonds react to current economic data, and the latest data has been weaker than expected, especially as it relates to the employment sector. All the weaker data and mild inflation reports that the Fed will react to in September are moving bond yields and mortgage rates today.”
What Does This Mean for the US Housing Market?
There is no doubt among experts that lower mortgage rates are good news for American homebuyers. “Mortgage rates have dropped by .25 to .375 percent over the past 10 days. This means more affordability in the home that they are looking to purchase,” Cohn said.
But experts are also skeptical of the significance of this improvement.
“This drop now makes homebuying more affordable of course, but it’s too soon to tell if the improvements have an impact,” Phil Crescenzo Jr., vice president of Southeast Division at Nation One Mortgage Corporation, told Newsweek.
“We saw fairly consistent mortgage rates in late spring and summer, so it didn’t take a huge move to be better than recent trends,” Hale said. “It’s also fair to describe today’s mortgage rates as still relatively high.”
“Put simply, this is a good break for current home shoppers who are already in the market, and it may be enough of a break to spur others to restart their home searches, especially as we approach a seasonably more favorable time of year for buyers,” Hale said.
“Real improvement in home affordability will need rates to drop even further. For borrowers’ sake, let’s hope that the data continues to be weaker and rates keep dropping,” Cohn said.
Is This a Good Time To Buy a Home?
It is as good a time as any to buy a home in the U.S.—meaning that buyers are still facing significant challenges even as mortgage rates dip slightly.
“I expect mortgage rates to eventually fall further, but this is not guaranteed, and the timing is also challenging to predict,” Hale said. “Trying to decide whether it’s a good time to buy is about more than just mortgage rates. Buyers should think about what they want and need from a home, and consider their options.”
Those who are on the fence between renting and owning, Hale said, are likely to find that the monthly costs are still tipped pretty heavily in favor of renting in many markets, “but even in this kind of environment, home ownership can be a good choice, especially for those planning to be in their next home for a longer amount of time.”
Waiting too long could be risky, however, especially if mortgage rates continue falling.
“The interest rate market is still unpredictable and waiting too long risks many buyers coming into the market, affecting supply and increasing home prices,” Crescenzo said.
Will Rates Continue Falling This Year?
Cohn believes that the August jobs report will be a key factor in the Fed’s decision at its September meeting.
“If the report is anything like the July report, the Fed will cut rates in September,” she said. “The only curveball will be the impact that the new tariffs have on the rate of inflation. If inflation increases, it may keep the Fed and rates in a holding pattern.”
Hale said that whether the Fed will cut rates during its meeting in mid-September will ultimately depend on the next few data readings, though she believes “the elements for a Fed rate cut in September are falling into place.”
A cut would help mortgage rates fall, but longer-term rates often move before the Fed does, Hale said, and the monetary policy outlook is just one factor investors are considering.
“For this reason, mortgage rates and the Fed’s rate don’t always move in tandem,” she said.
“For example, from the time that the Fed first cut rates in September 2024 until early January, mortgage rates actually increased by almost the same amount that the Fed cut–a percentage point. In this instance, I expect that mortgage rates are likely to move lower at least until the Fed’s first cut, which I expect in September.”
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