If you've been watching the real estate market, you may have noticed mortgage rates have dropped to their lowest point in over a year. But why is this happening even before the Federal Reserve cuts interest rates?
It's all about anticipation. Investors are expecting the Federal Reserve to start lowering interest rates in September after keeping them steady at 5.3% for the past year. While the Fed's rates and mortgage rates aren’t directly tied, the expectation of a rate cut often leads to a drop in mortgage rates as lenders adjust their forecasts for future borrowing costs. In other words, lenders are preparing in advance, which indirectly lowers mortgage rates.
This week, the average rate for a 30-year mortgage, the most popular home loan in the U.S., fell to 6.47%, according to Freddie Mac. This is a significant decrease from the over 7% rates we saw back in April. For both buyers and sellers, this change is a game-changer. Many potential sellers felt stuck with their existing loans at lower rates and kept their homes off the market, but this drop opens up new possibilities.
The drop from last week's 6.73% is the biggest we've seen this year. For perspective, mortgage rates were around 3% at the end of 2021. They began rising when the Federal Reserve started increasing its benchmark rate to fight inflation, reaching levels not seen in 20 years.
According to Sam Khater, Freddie Mac’s chief economist, this drop in mortgage rates boosts buyers' purchasing power and could reignite their interest in moving. It's also a great chance for current homeowners to consider refinancing. The number of mortgage applications for refinancing is the highest it’s been in over two years.
Despite this good news, the housing market is still somewhat slow. Sales of existing homes dropped by 5.4% in June, homes stayed on the market longer, and sellers received fewer offers. However, with these new lower mortgage rates, we might see some revitalization in the market.
Feel free to reach out if you have any questions or need guidance in your neighborhood!
