The interest rate on the most popular U.S. house loan fell to its lowest level in 15 months last week as the Federal Reserve hinted it could start cutting its policy rate in September. A labor market downturn bolstered financial market bets on substantial cuts.
On Wednesday, the Mortgage Bankers Association reported that the average 30-year fixed-rate mortgage contract rate fell 27 basis points to 6.55% in the week ended Aug. 2. That was the lowest rate since May 2023 and the biggest reduction in two years.
The drop gives potential purchasers some long-needed relief in an increasingly unaffordable property market as home prices and financing rates climbed.
It allows people who acquired homes at higher rates to refinance and lower payments. The MBA 30-year average peaked at 7.9% in October.
The MBA reported Wednesday that refinancing applications surged to the greatest level in two years. Purchase activity rose less than 1% due to the poor housing inventory that has raised costs.
Last week, the Fed hinted that cooling price pressures and a sluggish job market could lead to a policy rate decrease next month. In 2022 and 2023, the Fed aggressively raised borrowing prices to their highest levels in decades. The U.S. central bank has maintained a 5.25%–5.50% policy rate for over a year.
Two days after the Fed’s last policy meeting, the Labor Department’s monthly jobs report indicated that July’s U.S. unemployment rate rose to 4.3% and hiring stalled, heightening concerns of a recession.
The fears caused a global stock market slump on Monday, but stocks recovered on Tuesday.
The announcement also caused a surge in U.S. Treasury bonds, lowering their yields and mortgage rates, which is good news for millions of households looking for new homes, lower housing costs, or both.
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