30-Year Mortgage Rates Fall to Lowest Yearly Level as Application Numbers Pick Up

A home is listed 'For Sale' in New York City on March 31, 2021. (Spencer Platt/Getty Images)

Interest rates on mortgage loans have dipped to their lowest level in almost 15 months, with mortgage applications increasing in tandem.

The average rate on a 30-year fixed-rate mortgage fell to 6.47 percent for the week ending Aug. 8, according to latest data from Freddie Mac.

This is the lowest rate since the week ending May 17, 2023. Sam Khater, chief economist at the firm, pointed to “a less than favorable employment report” as one of the factors behind declining rates.

Labor data released last week showed that U.S. unemployment spiked in July from the previous month. In addition, an indicator called the Sahm Rule, which tracks unemployment, signaled a potential recession in the country.

“The decline in mortgage rates does increase prospective homebuyers’ purchasing power and should begin to pique their interest in making a move,” Khater stated.

“Additionally, this drop in rates is already providing some existing homeowners the opportunity to refinance, with the refinance share of market mortgage applications reaching nearly 42 percent, the highest since March 2022.”

The effect of declining mortgage rates is already visible in mortgage application numbers, which rose 6.9 percent for the week ending Aug. 2 from the previous week, according to the Mortgage Bankers Association (MBA).

Mortgage application volume also hit its highest level since January, said Joel Kan, MBA’s deputy chief economist.

Mortgage rates declined following “doveish communication” from the Federal Reserve regarding interest rates and a “weak jobs report,” he noted.

While overall mortgage applications increased, applications for purchasing homes saw “small gains,” while refinance applications surged across all loan types, Kan said.

“Homebuyers might be biding their time to enter the market given the prospect of lower rates.”

Interest Rates, Rising Buyer Interest

A key determinant of whether the current decline in mortgage rates will continue or not is the federal interest rates. Since June, the Fed has kept interest rates in a range of 5.25 to 5.50 percent. For mortgage rates to come down significantly, the Fed’s interest rate must first decline.

After its recent July 30–31 meeting, the Federal Open Market Committee said it would not be “appropriate” to reduce the interest rates unless the committee “has gained greater confidence that inflation is moving sustainably toward two percent.”

The 12-month inflation has remained at or above three percent for over a year, potentially disrupting chances of interest rate cuts.

However, interest rate traders are expecting rate cuts of 25–50 percentage points in the September FOMC meeting, according to data from the CME FedWatch tool.

With mortgage rates declining, interest among prospective buyers has increased, according to an Aug. 8 press release by real estate brokerage Redfin. Moreover, home prices are also declining, making the buying environment more attractive.

“Many of the buyers I’m working with are excited because they’ve been casually house hunting for a year, waiting for rates to come down before they make an offer. Now, a lot of those buyers want to get in now, before rates get too low and cause more competition,” said Redfin Premier agent Shoshana Godwin.

“One of my listings, which went on the market last week, had over 100 parties come through and received nine offers. Buyers are securing lower rates than they were a few months ago, but costs are still high enough that buyers are picky.”

Despite lowering prices and mortgage rates, home affordability still remains a big issue, recent data from the National Association of Realtors revealed.

In June, an individual had to shell out $2,303 per month to afford a median-priced existing single-family home, almost double the amount from 2021. During this period, mortgage payment as a percentage of income jumped from 16.9 to 26.8 percent.

The combination of higher monthly payments and a higher percentage of income being set aside for homes are a major deterrent for buyers.