Mortgage giant Freddie Mac reports the average rate on a 30-year fixed rate mortgage dropped to 3.47% this week, down sharply from last week’s 3.73% and the lowest rate since last spring.
The drop comes on the heels of an unexpectedly dismal U.S. jobs report last Friday that helped push global financial markets into temporary turmoil and ahead of the Federal Reserve’s September policy meeting at which the monetary body is widely expected to make a reduction — the first in four years — to its benchmark federal funds rates.
In its Thursday report, Freddie Mac noted the continued rate decline should loosen up activity in a U.S. residential real estate market that’s been stymied by record high home prices alongside the highest borrowing rates since the early 2000s.
“Mortgage rates plunged this week to their lowest level in over a year following the likely overreaction to a less-than-favorable employment report and financial market turbulence for an economy that remains on solid footing,” Freddie Mac’s Thursday report reads. “The decline in mortgage rates does increase prospective homebuyers’ purchasing power and should begin to pique their interest in making a move.”
While declining interest rates help shave dollars off the cost of borrowing, housing prices across the U.S. and in Utah remain at or near record levels.
In June, the median price of a home in the U.S. averaged $442,451, up 4% over the same time last year and the highest on record, per data from Redfin. In Utah, the median home sale price in June was $550,400, an increase of 2.5% over the last 12 months but down from the all-time high of $573,700 set in May 2022.
Mortgage rates are impacted by changes the Fed makes to its federal funds interest rates — the interest charged on lending between banks to maintain required reserves based on a percentage of each institution’s total deposits — but don’t necessarily move up in tandem with rate increases. Sometimes, they even move in the opposite direction. Long-term mortgages tend to track the yield on the 10-year Treasury note, which in turn is influenced by a variety of factors. These include investors’ expectations for future inflation and global demand for U.S. Treasury bonds. While mortgage rates plunged in the midst of the pandemic, and were hovering around 2% in late 2021, the rates tracked up alongside the Fed’s series of 11 hikes to its federal funds rate.
Last week, bond yields dropped sharply following release of the Labor Department’s latest jobs data. If the Fed cuts its rates next month, that should put continued downward pressure on consumer lending rates.
At its July policy meeting, the Federal Reserve’s rate-setting Open Market Committee voted unanimously to leave rates unchanged from where they’ve stood since July 2023 after a series of 11 straight increases, a strategy aiming to cool off a too-hot U.S. economy.
While in no way guaranteeing a rate reduction will come at the Fed’s September meeting, Powell offered some foreshadowing of its likelihood, pending any unforeseen economic wobbles, at the conclusion of the Fed’s meeting last Wednesday.
“We have made no decision about future meetings,” he said. “The broad sense of the committee is that the economy is moving closer to the point at which it will be appropriate to reduce our policy rate.”
Powell said Fed officials will be monitoring and assessing all of the economic data set to come in before next month’s meeting and “the question will be whether the totality of the data, evolving outlook and balance of the risks are consistent with rising confidence on inflation and maintaining a solid labor market.”
“If that test is met, a reduction in our policy rate could be on the table at our next policy meeting in September,” Powell said.
Powell told reporters the Fed is closely monitoring the U.S. labor market and noted that “if we see something that looks like a more significant downturn, that would be something that we would have the intention of responding to.”
While a series of steady U.S. inflation downticks over the second half of 2023 had spurred the Fed to signal late last year it could assess multiple federal lending rate cuts in 2024, inflation headed back up early this year and forced the monetary body to recompute. Now, it appears likely just a single rate cut will occur before the end of the year.