By Aarthi Swaminathan
The 30-year mortgage rate has averaged over 6.5% for most of the last three years
Sidelined home buyers holding their breath for lower mortgage rates might need to wait just a little more before they can exhale.
Mortgage rates dropped slightly ahead of this week’s Federal Reserve meeting, as financial markets assessed the future U.S. economy and the central bank’s willingness to cut the benchmark federal-funds rate.
The 30-year fixed-rate mortgage dropped 2 basis points on Wednesday to 6.75% from 6.77%, according to a daily survey of lenders by Mortgage News Daily. Over the last three days, it has dropped 6 basis points.
Mortgage rates have been a major focus of the Trump administration, as it tries to lower the overall cost of buying a home.
During a press conference at the Federal Reserve headquarters last week, President Donald Trump said that the “one thing we have to do is get housing prices down, and the interest rates down, so people can buy the house.”
Bill Pulte, director of the Federal Housing Finance Agency, said on X in June that he believes it is “so totally reckless to keep rates where they are at.
“Mortgage rates were 3% and went to 7%. This is crazy. This crushed affordability,” he wrote. “Inflation is down. Mortgage rates, and interest rates, need to come down. Jerome Powell is doing a great injustice to this Country.”
However, mortgage rates don’t directly follow the direction of the Fed’s benchmark short-term interest rate. Instead, they tend to move in tandem with the yield on the 10-year Treasury note, which rises when investors see inflation ahead. Inflation has been predicted to increase as a result of Trump’s tariff policies.
Many renters and homeowners with high mortgage rates have been waiting for lower rates so they can either buy a home or refinance to lower their monthly mortgage payments.
But mortgage rates are expected to finish the year at 6.4%, economists forecast. And most are not able to confidently predict when they will go below 6%. It has been nearly three years since the 30-year rate was below 6%. During the height of the pandemic, the average 30-year rate dropped to 2.67%. That was in late 2020.
“While I don’t expect a Fed rate cut this week, I do expect we’ll see two quarter-point Fed rate cuts by the end of the year as the labor market softens and inflation remains not too far off its 2% target,” Danielle Hale, chief economist at real-estate platform Realtor.com, told MarketWatch. The company expects the 30-year mortgage rate to fall to 6.4% by the end of this year.
(Realtor.com is operated by News Corp subsidiary Move Inc.; MarketWatch publisher Dow Jones is also a subsidiary of News Corp.)
“Fed rate cuts are not a guarantee of lower mortgage rates,” she added. She noted that even after the Fed cut its benchmark rate in September, November and December 2024, mortgage rates rose by nearly the same amount, as financial markets worried about inflation in the economy and federal deficits. For example, hours after the Federal Reserve cut interest rates in September 2024 – the first hike since 2020 – mortgage rates ticked up by 4 basis points.
But if trade policy and fiscal policy stabilizes, the Fed’s cut will eventually prompt mortgage rates to fall, Hale said.
The economist is not alone in making the call that the 30-year won’t fall below 6% by the end of this year.
Housing-finance giant Fannie Mae, which insures one in four mortgages in America, expects mortgage rates to fall at the end of the year to 6.4%, and go down to 6.0% next year, according to its latest forecast.
Mike Simonsen, chief economist at Compass, one of the biggest real-estate brokerages in the U.S., told MarketWatch that he also expects the 30-year to stay in the upper 6% range for the rest of the year.
“There have been no signs of economic changes, such as shifts in employment or inflation, that suggest dramatic interest rate changes are imminent,” he added. “Until the macro factors break out of their current tight, almost dull, trends, it’s unlikely that we’ll see big moves in mortgage rates.”
As to when the 30-year will go below 6%, Simonsen pointed to unemployment trends for signals. “A spike in layoffs or a notable, consistent rise in the unemployment rate would be a driver to break us out of the current channel,” he added.
Few people are buying homes
Mortgage rates are in focus because home-buying demand is weak. The spring and summer have been slow across most markets across America. In June, sales of existing homes fell while home prices continued to climb to record highs.
Fewer people are applying for a mortgage this summer. During the last week of July, mortgage demand was down about 4% from the previous week, to the lowest level since May. A buyer purchasing a $400,000 home with a 30-year fixed-rate mortgage at 6.75% would be paying about $2,700 a month.
Even if they are able to buy a house with cash, fewer people are signing contracts to buy homes. In June, signings fell 0.8% from the previous month, according to the National Association of Realtors. June is the latest month for which data is available. Pending home sales are down 2.8% from a year ago.
Buyers consider the current market to be an unfavorable one. Buyers’ reluctance to purchase homes is due in part to high borrowing costs and high prices. But growing concern over the future of the American economy is also holding them back from buying homes, a recent survey by Bright MLS found.
To be sure, some buyers are finding opportunities. Americans earning higher incomes are still buying and selling homes. Sales of luxury homes, priced at $1 million or more, were up 14% in June from a year ago. Even though luxury homes represented barely a tenth of sales, that’s where the action is, NAR data suggest.
Homeowners are also struggling
It’s not just buyers who are waiting for cheaper mortgages. Homeowners who recently purchased homes are also hoping for lower mortgage rates, so they can refinance and lower their monthly housing costs.
A rising share of homeowners are struggling with their mortgage payments. About six in 10 homeowners who purchased a home over the last five years live paycheck to paycheck, according to a recent survey by Santander U.S. Data from Intercontinental Exchange revealed that in June, delinquencies on mortgages backed by the Federal Housing Administration, which often go to lower-income borrowers with weaker credit scores, hit the highest level in 12 years, outside of the pandemic.
Sharply rising property taxes and home-insurance premiums are contributing to the financial pressure people are feeling.
No incentive for most homeowners to move
Even if mortgage rates were to fall, that may not be enough to stimulate the housing market. If the Fed cuts its fed-funds rate and mortgage rates eventually drop, it won’t stimulate the housing market much, Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, wrote in a note.
“A slim majority of existing homeowners still have locked in a sub-4% on their mortgages,” he said. “So, mortgage rates would have to fall a long way from their current level of about 6.8% for many of these homeowners to be able to move without facing a big jump in their monthly payments.”
-Aarthi Swaminathan
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