Mortgage rates sunk to their lowest point in nearly a year and a half, but homebuyers are still waiting on the sidelines.
The 30-year, fixed-rate mortgage, a common loan choice for homebuyers, averaged 6.35% as of Aug. 29. That’s slightly lower than its previous weekly average of 6.46%, and lower than the comparable week this time last year when it stood at 7.18%, the mortgage giant Freddie Mac said Thursday. It’s the fourth consecutive week that rates have averaged below 6.5%, and it’s the lowest average since May 2023.
Similarly, the 15-year, fixed-rate mortgage, another common loan option for homebuyers, eased, averaging 5.51%. That’s lower than last week when it stood at 5.62%, and it’s lower than a year earlier when it was 6.55%.
Daily mortgage rates, which can be more volatile than the weekly averages, had also eased as of Thursday afternoon, coming in even lower than the weekly average. The 30-year, fixed-rate mortgage was 6.37%, according to Mortgage News Daily, while the 15-year, fixed-rate mortgage stood at 5.92%.
That means that if a homebuyer took out a loan today, they would get a lower interest rate on that loan than yesterday.
Sam Khater, chief economist at Freddie Mac, said the downward trend in rates comes as the market expects the Federal Reserve will lower interest rates.
Last week, leaders of the Fed, the country’s central bank that regulates how much it costs to borrow money by setting a federal funds rate, that they would move to lower that interest rate at the bank’s next meeting in September. If that happens, it would be the first time interest rates have been lowered since 2022, and it would make borrowing money — including taking out a mortgage — cheaper.
Khater said rates “are expected to continue their decline.”
Buyers Hesitate
But as mortgage rates have fallen, borrowers looking to finance a house purchase have been hesitant.
“While potential homebuyers are watching closely, a rebound in purchase activity remains elusive until we see further declines,” Khater said.
Even though it’s getting cheaper to take out a mortgage, homebuyers are still waiting to see if it will get even less expensive to take out a loan and if there will be more houses that are listed for sale, according to data from the Mortgage Bankers Association.
“Despite lower rates, purchase applications have not moved much,” Joel Kan, the vice president and deputy chief economist of the industry group, said in a statement. “Prospective homebuyers are staying patient now that rates are moving lower and for-sale inventory has started to increase.”
On the other hand, some homeowners have taken advantage of lower mortgage rates to refinance their existing loans. Compared to this time last year, applications to refinance mortgages is up 85%, according to the MBA.
Some industry professionals have warned against buyers holding out to see if mortgage rates slip even more, arguing that rates will likely hold steady.
Michael Becker, a branch manager of Sierra Pacific Mortgage, said with no major economic data incoming and the holiday weekend, rates will remain “flat in the coming week,” according to a survey from personal finance website Bankrate.
Similarly, Joel Naroff, the president and chief economist of Naroff Economic Advisors, said in the survey mortgages will likely be unchanged until the Fed makes its next move.
“Uncertainty over how much the Fed will cut in September creates the need to be a little cautious about how much more rates can fall in the short run,” Naroff said.