Mortgage rates fall again, reinforcing the prospect of lower interest rates in the future

Mortgage rates fell again this week, a positive move for potential home buyers.

The average interest rate on 30-year fixed-rate mortgages fell to 6.46% from 6.49% the previous week, Freddie Mac reported Thursday. A year ago, the average interest rate on a 30-year fixed-rate loan was 7.23%.

The average interest rate on a 15-year fixed-rate mortgage was 5.62 percent, compared to 5.66 percent the previous week. The interest rate on a 15-year loan was 6.55 percent a year ago.

“Although mortgage rates have remained relatively stable in recent weeks, weaker economic data suggests that rates will trend slightly lower through the end of the year,” Sam Khater, chief economist at Freddie Mac, wrote in a statement.

This expectation seems to put the market in a holding pattern.

“Interest rates fell sharply earlier this month and are now just below 6.5 percent, which is not enough to motivate potential home buyers. We expect rates will probably need to fall by another percentage point to stimulate buyer demand,” the economist added.

In recent weeks, the housing market has been boosted by expectations that the Fed will begin cutting interest rates at its next meeting in September. Falling inflation figures and a slowdown in the labor market have also strengthened the case for lower interest rates.

However, many buyers are still undecided. The number of applications to purchase a home has fallen 5% since last week, marking the lowest level since February, according to data from the Mortgage Bankers Association (MBA) released Wednesday.

Homeowners are also taking a breather. The number of applications to refinance an existing home loan is down 15 percent from the previous week, but the volume is still a whopping 90 percent higher than the same week a year ago, when interest rates were still above 7 percent, according to the MBA.

“Despite the continued decline in interest rates, both debt consolidation and home purchase applications declined last week. This may indicate that some prospective borrowers are hoping that rates will fall even further before they decide to apply,” MBA President and CEO Bob Broeksmit wrote in a statement.

Meanwhile, some homebuyers returned to the market as mortgage rates are at their lowest since February. Existing home sales rose 1.3 percent since June to a seasonally adjusted annual rate of 3.95 million, the National Association of Realtors said Thursday, ending a four-month sales decline that began in March.

But tight affordability continues to weigh on buyer confidence. Fannie Mae's Home Purchase Sentiment Index, which measures consumer sentiment toward the housing market, fell in July. The decline underscores how lack of affordability is dampening homebuilding activity.

The story continues

“While we are seeing signs that affordability may be improving in certain parts of the country as supply slowly increases, household income remains tight relative to potential mortgage or rent payments, and our latest survey once again reflects real consumer frustration with the housing market,” Doug Duncan, Fannie Mae's senior vice president and chief economist, wrote in a statement.

Dani Romero is a reporter at Yahoo Finance. Follow her on X @daniromerotv.

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