Mortgage rates fall to lowest mark since April 2023, but is it enough?

While decisions on cutting key interest rates won’t be made by the Federal Reserve until mid-September, homebuyers are already seeing relief as mortgage rates have fallen to their lowest point since April 2023.

The Mortgage Bankers Association shared on Wednesday that the average rate on the 30-year fixed mortgage dropped to 6.44% for the week that ended Aug. 23.

As rates continue to decline, more home hunters are expected to enter what’s been a tumultuous market and begin applying for mortgages, the MBA shared.

Cheaper borrowing costs allow buyers a little more spending power, which could lure would-be buyers back into the market after being pushed out by record-high rates, which were above 7% earlier this year, and record-high home prices.

Joel Kan, the MBA’s deputy chief economist, shared that “Rates have now come down more than 80 basis points from a year ago,” or 0.8 percentage points.

It’s important to note that while the Fed meets on Sept. 18 to discuss its potential rate cut, mortgage rates are already moving as they are partially influenced by economic factors like the strength of the job market.

But even with the recent action moving rates lower, Kan says that purchase applications haven’t changed much.

“Prospective homebuyers are staying patient now that rates are moving lower and for-sale inventory has started to increase,” Kan said.

While much is still up in the air in regards to how much the Fed will cut rates — either a quarter or half percent — any rate cut is likely to drive mortgage rates even lower, according to economist Mark Zandi , who wrote about it in the latest Moody’s Analytics research report.

“Rates appear set to fall below 6% in coming months as the Fed cuts interest rates,” Zandi said.

However, with reluctant sellers, rates below 6% may still not be enough to get them into the market and increase the current supply, as many still have mortgages lower, some at around 3%.

Zandi says 6% is “still higher than most existing homeowners are paying on their mortgages, but it is increasingly clear that rates are not going to fall back to where they were during the pandemic.”

“It is difficult to know how low mortgage rates must go to entice a homeowner with changed family circumstances to post a for-sale sign, but a rate with a 5% handle is probably sufficient,” he noted.