Mortgage rates dip to 6.26% as Fed moves to cut rates; refinances surge

The average rate on the 30-year fixed-rate mortgage fell to 6.26% this week, the lowest since Oct. 3, Freddie Mac said Thursday. The rate was 6.35% a week ago and 6.09% a year earlier. The 15-year fixed-rate mortgage dropped to 5.41% from 5.50% last week; a year ago, it stood at 5.15%, Freddie Mac said.

Mortgage rates are influenced by multiple factors, including the Federal Reserve’s policy decisions and bond market expectations for the economy and inflation. The 10-year Treasury yield hovered around 4.12% in midday trading Thursday, up from 4.06% late Wednesday. Rates have trended downward since late July amid bets that the Fed would move to cut rates for the first time since last year.

On Wednesday, the Fed delivered a quarter-point rate cut and projected it would lower its benchmark rate twice more this year, citing concerns about the U.S. job market. The 30-year rate is now at its lowest level since Oct. 3.

Even with rates moving lower, the housing market has remained soft since 2022, when mortgage rates began climbing from historic lows. Sales of previously occupied homes fell to their lowest point in nearly 30 years and have stayed sluggish this year as the average rate on a 30-year loan hovered above 6%. Jiayi Xu, senior economist with Realtor.com, said rates in the low-6% range could help support a modest pickup in home sales in the coming months, but the broader impact may be muted because most homeowners—about 81%—already have mortgages below 6% and have little incentive to move.

Back on activity, demand for mortgages has picked up as buyers and homeowners take advantage of the rate slide. Mortgage applications, which include loans to buy a home or refinance an existing mortgage, jumped nearly 30% last week from the previous week, the Mortgage Bankers Association said. Applications for refinancing loans accounted for about 60% of all activity. Demand for adjustable-rate mortgages rose sharply, accounting for about 13% of all loan applications—the largest share since 2008, in the housing bust era. Bill Banfield, chief business officer at Rocket Cos., said the Fed’s rate cut makes ARMs more attractive because their rates track short-term policy rates. “For consumers, it’s another signal that the cost of borrowing is gradually moving lower,” Banfield said.

Taken together, the movement in rates and loan demand could support a modest uptick in home buying in the coming months, though the overall effect remains constrained by the still-subdued housing market and job-market concerns.