The contract rate for the 30-year mortgage--the most popular home loan in the United States--fell to the lowest level recorded in 16 months.
The average interest rate on a 30-year fixed-rate mortgage fell to 6.44% in the week ending Aug. 23. That is 0.6% lower than last week and fell 0.38% in four weeks, per the Mortgage Bankers Association (MBA). It is also the lowest rate recorded since April 2023.
The decline in mortgage rates also led to an increase in mortgage and purchase applications, which edged up to 0.5% and 1%, respectively.
Why Mortgage Rates Are Falling
The recent decline in the 30-year mortgage rate comes as experts believe the Fed will cut its benchmark rate during its next meeting on Sept. 18 and slash short-term rates by nearly a full percentage point by the end of 2024.
The Fed hiked its interest rate in 2022 and 2023 to cool inflation, leading to soaring borrowing costs. However, they are expected to make the first cut in September, which Fed Chair Jerome Powell hinted during a recent speech at the Kansas City Fed's annual conference at Jackson Hole in Wyoming.
"The time has come for policy to adjust," he said.
It is unclear how big of a cut will happen in September. The Fed could slash mortgage rates by either a quarter-point or a half-point.
How Low Could Mortgage Rates Fall This Year
The Fed's interest rate does not directly influence mortgage rates. However, it affects other factors in the financial market that generally lead to a reduction in borrowing rates, including those for consumers seeking mortgages.
There is no guarantee that mortgage rates will drop and how long the lowest rates will stay. The general consensus is if the Fed lowers its rates by 25 basis points, the mortgage rate would also fall by 0.25%.
Mortgage rates could also drop to between 4.50% and 4.75% by the end of the year if the Fed cuts its interest rates in the next three meetings between September and December, according to a recent poll of economists.
