This week, the average interest rate for the widely-used 30-year fixed-rate mortgage in the U.S. dropped to its lowest point since mid-March, offering a glimmer of hope for the beleaguered housing market. Analysts suggest that further declines may be on the horizon if the Federal Reserve implements expected rate cuts in the coming months.
According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.77% for the week ending July 18, down from 6.89% the previous week. This marks the lowest rate since mid-March and is comparable to the 6.78% average during the same period last year. Despite the decline, homebuyers have yet to respond, with purchase application demand remaining about 5% lower than in the spring, as per Freddie Mac’s Chief Economist Sam Khater.
“Sometimes as rates decline, demand weakens,” Khater noted. “This paradox occurs as buyers wait to see if rates will drop even further before committing to a purchase.”
The housing market has been significantly impacted by the Federal Reserve’s interest rate hikes since early 2022. In 2023, existing-home sales plummeted to their lowest level since 1995, with supply remaining scarce. Many homeowners are hesitant to sell, as their current mortgages have much lower rates, and purchasing a new home would likely mean facing higher rates and increased costs. This limited inventory continues to keep home prices high.
Economists are optimistic that the anticipated rate cuts by the Federal Reserve, potentially starting as early as September, could reduce borrowing costs and support the housing market in the months ahead.
However, the recovery signals are mixed. The Census Bureau reported a 3.0% increase in overall housing starts in June, driven mainly by apartment projects. Conversely, single-family home construction fell to an eight-month low.
Next week, the National Association of Realtors will release data on existing home sales for June. Sales of pre-owned homes have declined for three consecutive months through May.
