Lower rates may offer relief, but affordability remains a challenge
The average rate on a 30-year US mortgage dropped to 6.5% this week, marking its lowest level since October 2024, according to Freddie Mac’s latest Primary Mortgage Market Survey.
The decline from last week’s 6.56% reading extended a downward trend that has persisted since late July, offering a glimmer of hope to prospective homebuyers and current owners alike.
“Mortgage rates continue to trend down, increasing optimism for new buyers and current owners alike,” said Sam Khater, Freddie Mac’s chief economist.
“As rates continue to drop, the number of homeowners who have the opportunity to refinance is expanding. In fact, the share of market mortgage applications that were for a refinance reached nearly 47%, the highest since October.”
The average rate on a 30-year fixed mortgage was 6.35% a year ago, while the 15-year fixed mortgage rate fell to 5.6% from last week’s 5.69%. A year earlier, the 15-year note averaged 5.47%, Freddie Mac reported.
Similarly, latest data from Redfin showed that the median mortgage payment fell to $2,616, its lowest level since the beginning of the year.
Rates have been trending lower as investors anticipate a possible Federal Reserve rate cut at the central bank’s upcoming meeting. While the Fed does not directly set mortgage rates, its policy decisions influence bond yields, particularly the 10-year Treasury, which lenders use as a benchmark for home loan pricing.
Affordability gap persists despite lower rates
Despite the rate relief, housing affordability remains a major hurdle. A recent Realtor.com report found that as of August, only 28% of homes on the market were affordable for the average US household, down from from 55.7% in 2019.
The maximum affordable home price for a median-income household has fallen to $298,000, a decrease of nearly $30,000 since 2019, when it stood at $325,000. This erosion of buying power is attributed to higher mortgage rates, which have soared despite a 15.7% rise in median incomes over the same period. For example, a buyer today is paying an additional $7,200 per year in financing for a $400,000 home compared to 2019.
“Even as incomes grow, higher interest rates have eroded the real-world purchasing power of the typical American household,” said Danielle Hale, chief economist for Realtor.com.
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