Borrowing costs are sliding, sparking speculation that a borrowing surge could be on the way
Mortgage rates posted their largest weekly drop in 11 months, Freddie Mac said Thursday, sliding lower as expectations of a Federal Reserve interest rate cut jumped.
The 30-year fixed mortgage rate fell to an average of 6.35% for the week ending September 11, a further decline from last week’s 6.50% amid signs that the US economy is weakening and a central bank rate reduction could be imminent.
That trend is convincing some would-be buyers to revisit their purchasing plans. “Mortgage rates are headed in the right direction and homebuyers have noticed, as purchase applications reached the highest year-over-year growth in rate in more than four years,” Sam Khater, Freddie Mac’s chief economist, said in prepared remarks.
Meanwhile, refinance demand is also soaring as homeowners who purchased at high rates rushed to lock in a lower monthly borrowing cost.
Homeowners and hopeful buyers increasingly view even lower rates down the line as likely. Fannie Mae’s latest Home Purchase Sentiment Index (HPSI) showed that more Americans now expect rates to fall than rise, the first time that’s happened since the beginning of the year.
Still, with affordability remaining stretched for scores of buyers, few are getting carried away with the recent rate drop.
Just 28% of respondents to Fannie Mae’s survey said it was now a good time to buy a home – although that was up from 23% in July – while a recent Realtor.com report showed a mere 28% of homes on the market were affordable for the average US household.
Mortgage brokers, though, will hope a trend towards lower rates helps thaw a market that’s remained frozen throughout most of this year amid continuing fears about the direction of the economy.
Rate reduction still expected despite stubborn inflation
The rate decline arrives with financial markets increasingly confident that the Fed will lower rates for the first time this year when it meets next Wednesday (September 17), spurred by weaker-than-expected labor market figures and a recent sharp downward revision of nonfarm payrolls through March.
Inflation rose last month, inching up to 2.9% (a 0.2% month-over-month gain) in a development that would normally call into question the prospect of a Fed cut.
Consumer prices in the US climbed at a faster pace than expected in August, but market participants and analysts remained convinced that the Federal Reserve would proceed with a rate cut at its upcoming meeting, citing fresh signs of labor market weaknesshttps://t.co/UVExcKcikf
— Mortgage Professional America Magazine (@MPAMagazineUS) September 11, 2025
But while the central bank is in a “difficult situation” over next week’s decision, Oxford Economics’ chief US economist Ryan Sweet said a reduction is still likely.
“Its inflation and full employment mandates are both moving in the wrong direction but on net, their risk management approach still leaves us comfortable with our forecast change, bringing the next rate cut from December to September,” Sweet wrote.
And mortgage industry veteran Melissa Cohn, regional vice president at William Raveis Mortgage, is also expecting a move to bring rates lower next week. She said the Fed “will be forced to cut rates” Wednesday, although it seems the bigger half-point move some had predicted now looks unlikely because of the hot inflation numbers.
Traders already pricing in prospect of a Fed reduction
A Fed cut next week wouldn’t necessarily see mortgage rates drop again. Instead, the expectation of a reduction by the central bank has pushed down 10-year Treasury yields, a key factor in determining the 30-year fixed rate.
That yield has dipped since the beginning of the month, falling from just under 4.31% on September 2 to a low of 4.01% at time of writing after briefly sliding below the four-percent mark. In mid-August, it was as high as 4.35%.
The Trump administration has also ramped up pressure on the Fed to cut in recent weeks, with the president repeatedly expressing his displeasure at the central bank for holding rates steady throughout the year to date.
Fed chair Jerome Powell gave his clearest indication yet that a cut could be on the way in a speech at its annual retreat in Jackson Hole, helping fuel some of the recent downward pressure on bond yields and mortgage rates.
But despite the recent drop, mortgage market watchers shouldn’t expect rates to nosedive anytime soon. Fannie’s latest forecast, adjusted in August, indicates that the average 30-year rate is still set to end the year at 6.5% and will remain above 6% through 2026, falling to an average of 6.1% by the end of that year.
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