While rates are still slightly higher year-over-year, the recent decline has brought buyers to the market
The recent slide in mortgage rates is prompting homebuyers to leave the sidelines and re-enter the housing market.
Redfin released its latest report covering the last four weeks ending August 27. It showed pending home sales up 1.6% year-over-year. This is the second consecutive month of increases in pending sales, following mostly declines in 2025.
In addition, the median mortgage payment in Redfin’s survey fell to $2,616, its lowest level since the beginning of the year.
The news was even better in the Mortgage Bankers Association's (MBA) July report, also released on Thursday. It showed that homebuyer affordability improved in the month.
According to the MBA Purchase Applications Payment Index (PAPI) report, the median payment applied for in July decreased to $2,127, down from $2,172 in June.
Edward Seiler is the MBA associate vice president of housing economics and executive director of the Research Institute for Housing America. He said while rates will likely remain elevated for the rest of the year, other factors could continue to bring buyers to the market.
“Affordability conditions have now improved for two consecutive months, the result of lower mortgage rates and continued, strong income growth,” Seiler said. “MBA is forecasting that mortgage rates will remain in the 6.5 percent to 7 percent range for the rest of 2025. While still elevated, continued income growth and softening home-price gains should boost prospective buyers’ purchasing power in the months ahead.”
Cuts priced in
According to the Redfin report, the weekly average mortgage rate is sitting at 6.58%, the lowest it has been in 10 months.
However, agents in cities like Seattle and Nashville haven’t seen a bump in demand due to the low rates. They report that buyers are waiting for the Federal Reserve’s expected rate cut in September. However, many economists, including those at Redfin, believe the market has already factored in the rate cut.
Redfin also reports new listings are up 1.9% year over year. They note it’s the biggest increase in over two months, but they also acknowledge that sellers have pulled back from the market due to low buyer demand.
The MBA’s PAPI index decreased 3.0% in July to 158.7. Their index is inversely related to affordability, meaning a decline indicates an increase in borrower affordability conditions.
Part of the reason for the improvement in conditions, according to the MBA, is a 3.7% year-over-year increase in median earnings.
In addition to median payment numbers decreasing, those who applied for lower-payment mortgages saw payments decrease in July to $1,468, down from $1,500 in June.
All eyes on PCE
The last day before the Labor Day holiday weekend brings a huge piece of financial data, as the Personal Consumption Expenditures (PCE) price index is released. It is the Federal Reserve’s preferred indicator of inflation.
Chen Zhao, head of economics research at Redfin, said on the company’s website that she expects PCE to increase 0.3% month over month and 2.9% year over year based on CPI and PPI readings in August.
“That would show that inflation is higher than the Fed’s target and increasing, but perhaps not as much feared three months after tariff announcements on April 2,” Zhao said on the Redfin website. “PCE rarely surprises because the input data comes from the same sources as CPI and PPI.”
Yury Shraybman, founder of Innovative Mortgage Brokers, says buyers are still active despite the seasonal slowdown, and refinances are making a comeback. https://t.co/X32NyLpY4H
— Mortgage Professional America Magazine (@MPAMagazineUS) August 21, 2025
It is the last PCE report to be released before the Fed announces its next rate decision on September 17. Markets are still expecting a 25-basis-point cut at the meeting. CME Fedwatch has the chance of a cut at 85.3% as of Thursday morning.
There are still unknowns with the current efforts of the Trump administration to remove Lisa Cook from the Fed board for alleged mortgage fraud. Cook filed suit against President Donald Trump in federal court in Washington DC on Thursday. The suit also names Fed chair Jerome Powell and the board of governors as defendants.
There is also one vacancy on the board after the resignation of Adriana Kugler earlier this month.
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