T
he Federal Reserve has recently hinted at a possible reduction in its key interest rate, which has already led to a decrease in mortgage rates according to Freddie Mac. This week, the average for a 30-year fixed-rate mortgage was 6.35%. Some economists predict that rates will continue to decrease over the coming weeks. In a recent statement, Federal Reserve Chair Jerome Powell indicated that a rate adjustment might be necessary at the Fed's upcoming mid-September meeting.

    Mortgage rates have been steadily decreasing over the past year, with this week's average being significantly lower than the 7.18% average of a year ago. This could result in substantial savings on borrowing costs for home buyers compared to last year. For example, a monthly mortgage payment on a home priced at about $400,000 at this week's average rate of 6.35% would be $1,991 (assuming a 20% down payment).

    According to Jessica Lautz, deputy chief economist of the National Association of REALTORS®, this is the lowest mortgage interest rate drop in the past 15 months. This change significantly improves housing affordability for home buyers. For instance, a buyer who sought a mortgage at the recent high of 7.79% in October 2023 would now pay $2,301 per month (assuming a 20% down payment). This represents a monthly savings of $310 or an annual savings of $3,720.

    Despite these recent dips in rates over the past few weeks, some home buyers are still hesitant to take the plunge due to a lack of confidence in the housing market. Mortgage applications for home purchases have only increased by 1% over the past few weeks and remain 9% lower than they were a year ago, according to the Mortgage Bankers Association.

    Joel Kan, MBA's deputy chief economist, believes that prospective home buyers are becoming more patient as rates continue to move lower and for-sale inventory starts to increase. Freddie Mac reports the following national averages for mortgage rates for the week ending Aug. 29:

    - 30-year fixed-rate mortgages: averaged 6.35%, a decrease from last week's 6.46% average. A year ago, 30-year rates averaged 7.18%.

    - 15-year fixed-rate mortgages: averaged 5.51%, a decrease from last week's 5.62% average. Last year at this time, 15-year rates averaged 6.55%.