Mortgage rates fell this week to the lowest point since February 2023, in a welcome sign for Americans grappling with a tough housing market.
The standard, 30-year fixed-rate mortgage averaged 6.20% in the week ended September 12, mortgage financing giant Freddie Mac said Thursday. That’s down from last week’s 6.35% and well below the two-decade high of 7.79% in October 2023.
Mortgage rates started to drop early last month on news affirming lower interest rates in the future, specifically after a weaker-than-expected jobs report for July, and have gradually edged lower since.
“Mortgage rates have fallen more than half a percent over the last six weeks and are at their lowest level since February 2023,” Sam Khater, Freddie Mac’s chief economist, said in a release. “Rates continue to soften due to incoming economic data that is more sedate. But despite the improving mortgage rate environment, prospective buyers remain on the sidelines, as they negotiate a combination of high house prices and persistent supply shortages.”
Economic data pointing to slower inflation and a weakening job market have paved the way for the Federal Reserve to roll out the first interest-rate cut since 2020, slated for the central bank’s upcoming policy meeting next week.
The Fed doesn’t directly set mortgage rates, but its action do influence them through movements in bond yields. The benchmark 10-year US Treasury yield, which moves in anticipation of the Fed’s decisions on interest rates, has tumbled over the past several weeks on data showing that price pressures are easing and that the job market isn’t heating up.
Even with borrowing costs moving lower, the US housing market remains unaffordable for millions of home seekers, especially those with low incomes living in cities seeing fast home-price growth, such as New York City, San Diego and Las Vegas, according to data from S&P Global. Renters across America are also struggling, especially in urban population 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 incomes (or the rent-to-income ratio.) Renters in those areas dish out more than 30% of their income toward rent, the report said.
A key issue driving America’s housing affordability crisis is a persistent lack of homes on the market. Supply is simply not keeping up with demand in many markets across the country, for varying reasons. That includes construction costs, complicated zoning laws, not enough land available for development and, in some cases, shortages of workers for home construction. Many homeowners are also preferring to sit tight with the low mortgage rate they locked in before the Fed began to hike rates to tamp down inflation in 2022.
There have been some steps in the right direction this year, however. Total housing inventory has improved every month this year, according to data from the National Association of Realtors. At the end of July, it stood at 1.33 million units, up 0.8% from June and 19.8% higher from a year earlier. But that’s still not enough to keep up with demand.
Persistent housing unaffordability has resulted in sluggish demand, too. Sales of previously owned homes, which makes up a vast majority of the market and serves as a proxy for housing demand, rose 1.3% in July, breaking a streak of four consecutive monthly declines. Despite the rebound, NAR’s chief economist, Lawrence Yun, said “home sales are still sluggish,” in a release.
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