Mortgage Rates Fall to Lowest Level in a Year as Buyer Demand Surges

After a long stretch of stubbornly high borrowing costs, mortgage rates are finally easing — and homebuyers are taking notice. The average rate for a 30-year fixed mortgage dropped to 6.35% this past week, down from 6.5% a week earlier, according to Freddie Mac. That's the lowest level since last October and marks the biggest weekly decline in over a year.

Rates have hovered above 6.5% for most of the past twelve months and even climbed beyond 7% earlier this year. Now, as they begin to fall, the housing market is showing signs of life.

"Mortgage rates are headed in the right direction and homebuyers have noticed," said Sam Khater, Freddie Mac's chief economist. "Purchase applications reached the highest year-over-year growth rate in more than four years."

Borrowers Rush to Refinance and Buy

The drop in rates has triggered a wave of activity. Mortgage applications for both purchases and refinances rose on both a weekly and annual basis, according to data from the Mortgage Bankers Association.

Refinancing made up nearly half of all mortgage applications — a clear signal that homeowners who locked in loans during higher-rate months are eager to trim their monthly payments. Meanwhile, purchase applications jumped to their highest point since July, as buyers who had been sidelined by affordability concerns re-entered the market.

What's Behind the Rate Decline?

A mix of economic data and market expectations helped push mortgage rates lower.

Recent reports showed inflation rising slightly — grocery prices jumped 0.6% in August and are up 2.7% over the past year — but the bigger story was the softening labor market. The Bureau of Labor Statistics revised its figures and revealed that hiring over the past 12 months was overstated by 911,000 jobs, and the latest monthly report showed just 22,000 new jobs added in August.

This cooling job growth led to a decline in Treasury yields, which directly influence mortgage rates. As investors anticipate slower economic momentum and a potential rate cut from the Federal Reserve, yields — and by extension mortgage rates — have slipped.

The Fed's Next Move

The Fed is widely expected to cut its benchmark federal funds rate at its upcoming meeting next week. However, experts caution that the move might not lead to a major drop in mortgage rates.

That's because much of the expectation for a cut is already baked into current pricing. In other words, markets have been anticipating the move for weeks, and lenders have adjusted accordingly.

Still, the broader sentiment is improving. Lower borrowing costs, even modestly lower ones, can translate to thousands of dollars in savings over the life of a loan — and that's enough to pull more buyers back into the market.

A Sign of Optimism

For much of the past year, the housing market has been caught in a tug-of-war between high prices and high rates. While affordability challenges remain, the recent decline marks a turning point that could gradually restore balance.

If rates continue to edge lower into the fall — and if the Fed signals a more sustained shift toward easing — buyers may finally find a little breathing room. For now, one thing is clear: momentum is returning to the housing market, and both buyers and homeowners are ready to take advantage of it.

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