Mortgage Rates Drop Below 7% But Remain Elevated

Mortgage rates in the United States have eased a bit from their recent highs, as cooling inflation and soft labor market data have cemented hopes of the Fed starting to cut rates in September. According to Freddie Mac, the average rate for a 30-year fixed mortgage dropped to 6.46 percent in the week ended August 22, which is the lowest it's been since May 2023.

Prior to the latest relief, mortgage rates had climbed by more than 4 percentage points in just two years, peaking at 7.79 percent in the fall of 2023. The steep increase in mortgage rates combined with high home prices pushed many potential buyers out of the market, especially as high rents and other costs of living have made it very difficult to save for a significant down payment.

Making things even more difficult, high mortgage rates didn't just affect the demand side of the market. Supply was also constrained as prospective sellers stayed put to avoid taking out a new mortgage at a much higher rate than their current one. This in turn has kept home prices elevated, completing the vicious circle for would-be home buyers.

"Although mortgage rates have stayed relatively flat over the past couple of weeks, softer incoming economic data suggest rates will gently slope downward through the end of the year," Sam Khater, Freddie Mac’s chief economist, said in a statement. "Earlier this month, rates plunged and are now lingering just under 6.5 percent, which has not been enough to motivate potential homebuyers. We expect rates likely will need to decline another percentage point to generate buyer demand."