Mortgage rates fall to lowest level since February 2023

Washington
CNN
—

Mortgage rates fell this week to their lowest level since February 2023, a welcome sign for Americans struggling with a difficult housing market.

The standard 30-year fixed-rate mortgage averaged 6.20% for the week ended Sept. 12, mortgage finance giant Freddie Mac said Thursday. That's down from the previous week's 6.35% and well below the two-decade high of 7.79% in October 2023.

Mortgage rates began to decline early last month following news of lower rates to come, particularly after a weaker-than-expected July jobs report, and have been gradually declining since then.

“Mortgage rates have fallen more than half a percent over the past six weeks and are at their lowest levels since February 2023,” said Sam Khater, chief economist at Freddie Mac, in a press release. “Rates continue to fall as upcoming economic data turns more dovish. Yet despite the improving mortgage rate environment, prospective buyers remain cautious as they contend with a combination of high home prices and persistent supply constraints.”

Economic data pointing to lower inflation and a weakening labor market have paved the way for the Federal Reserve to deliver its first interest rate cut since 2020, scheduled for the central bank's upcoming monetary policy meeting next week.

The Fed does not set mortgage rates directly, but its actions affect them through movements in bond yields. The yield on the 10-year U.S. Treasury note, which moves in anticipation of the Fed's interest rate decisions, has fallen in recent weeks as data show that price pressures are easing and the labor market is not tightening.

Even as borrowing costs fall, the U.S. housing market remains unaffordable for millions of home seekers. This is especially true for low-income earners in cities with rapidly rising home prices such as New York City, San Diego and Las Vegas, according to data from S&P Global. Renters across America are also struggling to make ends meet, especially in urban centers such as the Big Apple, Los Angeles and the Miami metropolitan area, according to a recent Moody's report that analyzed rents and family income (or the rent-to-income ratio). Renters in these areas spend more than 30 percent of their income on rent, the report said.

A major reason for America's housing affordability crisis is the ongoing shortage of homes on the market. Supply simply can't keep up with demand in many markets across the country for a variety of reasons, including construction costs, complicated zoning laws, not enough land to build on, and in some cases, a shortage of workers to build homes. Many homeowners also prefer to hold on to the low mortgage rates they secured before the Fed began raising rates to curb inflation in 2022.

This year, however, there have been some steps in the right direction. According to the National Association of Realtors, the total inventory of housing units has improved every month this year. At the end of July, it stood at 1.33 million units, up 0.8 percent from June and 19.8 percent from a year ago. But that's still not enough to keep up with demand.

The continued unaffordability of housing has also led to sluggish demand. Sales of used homes, which make up the largest part of the market and serve as a proxy for housing demand, rose 1.3 percent in July, ending a streak of four consecutive monthly declines. Despite the rebound, NAR chief economist Lawrence Yun said in a press release that “home sales are still sluggish.”