Mortgage rates dropped to their lowest level in more than a year

The 30-year U.S. fixed mortgage rate fell to 6.55% last week — its lowest level since May 2023, according to Mortgage Bankers Association data published Wednesday.

This drop resulted in a 6.9% weekly increase in mortgage applications, reaching their highest level since January. It also caused a 59% jump in refinancing applications from the same week a year ago, as people look to take advantage of the relatively lower rates to lock in a new, cheaper mortgage.

While mortgage rates are not directly linked to interest rates, any action taken by the Federal Reserve will have knock-on effects on mortgage pricing. The drop in mortgage rates comes amid signs that the U.S. economy has cooled considerably. Friday’s jobs report showed unemployment ticking up to 4.3% — it’s highest level in three years — signaling that the central bank could finally carry out a highly anticipated rate cut sooner rather than later.

But the decline in rates didn’t have a major impact on purchase activity, which rose just 1% from a week earlier. The housing market remains challenging, particularly for first-time homebuyers, as affordability continues to be a persistent issue across the country.

The tides of the housing market do appear to be turning, albeit slowly. Homebuyers’ purchasing power is increasing, inventory is on the rise, and lower rates should spur more activity.

“For-sale inventory is beginning to increase gradually in some parts of the country and homebuyers might be biding their time to enter the market given the prospect of lower rates,” Mortgage Bankers Association vice president and deputy chief economist Joel Kan said.

But house hunters who have been holding off from buying in anticipation of lower rates shouldn’t wait much longer, according to Redfin chief economist Daryl Fairweather.

“Mortgage rates are falling further and faster than expected due to last week’s soft jobs report and mounting recession fears,” Fairweather said. “Mortgage rates may decline more as the year goes on, but that will invite competition and push home prices higher, likely canceling out the savings from a lower mortgage rate.”

The Mortgage Bankers Association has carried out its weekly survey since 1990, covering more than 75% of all U.S. retail residential mortgage applications from mortgage bankers, commercial banks, and thrifts.