T
he downward trend in mortgage rates has not yet sparked interest among homebuyers, but predictions of further cuts this year could bring rates closer to 5% and boost the housing market in the spring.
Key points:
* Mortgage rates have plunged to 6.2% this week, a level not seen since February 2023.
* Affordability remains a concern, but home price growth is slowing, and both purchase and refinance applications have increased slightly.
* Economic indicators suggest that the Federal Reserve will likely cut rates next week, but only moderately.
* The 30-year fixed-rate mortgage averaged 6.2%, down from 6.35% last week, according to Freddie Mac.
* While homebuyers can save on borrowing costs, high house prices and supply shortages continue to deter prospective buyers.
* Mortgage applications have increased slightly, but affordability challenges may still be hindering purchase decisions.
* Home price growth has slowed, with CoreLogic's Home Price Index showing no monthly gains in July.
* Inflation rates have been declining, with the Consumer Price Index landing at 2.5% in August, the lowest level since February 2021.
* The shelter component of the Index remains high at 5.2%, putting pressure on renters and prospective buyers.
* The easing of inflation combined with last week's weaker-than-expected jobs report reinforces the likelihood of a Fed rate cut next week.
* Prospective homebuyers expecting dramatic rate drops after a Fed cut will be disappointed, as mortgage rates have already fallen since early July.
* Federal Reserve Governor Christopher Waller hinted at multiple rate cuts, with some analysts predicting cuts at consecutive meetings if data supports it.
* Aditya Bhave, head of U.S. economics at Bank of America Securities, expects the Fed to cut rates by 25 bps at each of their next five meetings.
* If multiple cuts are on the table, spring home shoppers may see rates below 6%. Mortgage rates in the mid-5% range are expected to bring more buyers into the market, potentially heating up activity in 2025.
