T
he Federal Reserve has recently indicated a potential reduction in its key interest rate during the mid-September meeting, which has already influenced a decrease in mortgage rates according to Freddie Mac. This week's average for a 30-year fixed-rate mortgage was 6.35%, and some economists predict further declines in the upcoming weeks. This decrease is largely due to expectations of a Fed rate cut, as stated by Freddie Mac's chief economist, Sam Khater. Despite this, potential home buyers are still hesitant to make a purchase due to the lack of a rebound in purchase activity.

    Compared to a year ago when mortgage rates averaged 7.18%, today's rates are significantly lower, which could result in hundreds of dollars in savings on borrowing costs. At this week's average rate of 6.35%, a monthly mortgage payment on a home priced at about $400,000 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, as stated by Lautz, which positively impacts housing affordability for home buyers.

    For instance, buyers who sought a mortgage at the recent high of 7.79% in October 2023 would now pay $2,301 per month (assuming a $400,000 home price and a 20% down payment). This represents a monthly saving of $310 or an annual saving of $3,720 compared to a year ago when rates were higher. Despite these drops, some home buyers are still hesitant to take advantage of lower rates and are waiting for even lower rates. This is evident from the fact that mortgage applications for home purchases only increased by 1% over recent weeks and remain 9% lower than a year ago, according to the Mortgage Bankers Association.

    Freddie Mac reports the following national averages for mortgage rates for the week ending Aug. 29:

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

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