Thirty-year fixed rates fall to 6.63% as weak employment data raises expectations for Federal Reserve rate cuts in September
Mortgage rates experienced their steepest decline in months this week following disappointing employment data that has renewed concerns about the strength of the American economy. The 30-year fixed mortgage rate dropped to 6.63% through Wednesday, representing a significant 9 basis point decrease from the previous week’s 6.72% rate.
The sharp decline brings mortgage rates to their lowest point since April, providing welcome relief for prospective homebuyers who have struggled with affordability challenges. The 15-year fixed mortgage rate also fell substantially, decreasing to 5.75% from 5.85% the previous week.
Sam Khater, chief economist at Freddie Mac, noted that the rate decline increases purchasing power for potential homebuyers who have been waiting for more favorable borrowing conditions. This development comes as the housing market continues grappling with affordability issues that have kept many buyers on the sidelines.
Employment data drives rate movement
The dramatic rate decline followed the release of disappointing July employment figures that showed the U.S. economy added only 73,000 jobs during the month. Even more concerning for economic observers, government statisticians revised previous employment data downward, indicating that May and June saw approximately 250,000 fewer job additions than originally reported.
These employment revisions have sparked fresh worries about economic momentum and prompted financial markets to reassess expectations for Federal Reserve monetary policy. The weak job growth contrasts sharply with earlier optimism about economic recovery and has led investors to anticipate more aggressive action from the central bank.
Ten-year Treasury yields, which mortgage rates closely follow, plunged 16 basis points to 4.22% on Friday as investors absorbed the employment data. This movement in Treasury markets directly influenced mortgage rate pricing, as lenders typically adjust their rates based on bond market performance.
Federal Reserve rate cuts appear likely
Financial market traders now see a 91% probability that the Federal Reserve will reduce interest rates during their September meeting, according to CME FedWatch data. This expectation represents a significant shift from earlier projections and reflects growing concerns about labor market weakness.
While mortgage rates don’t move in perfect alignment with Federal Reserve policy rates, they do respond to expectations about future monetary policy decisions. The anticipation of Fed rate cuts has contributed to the recent decline in borrowing costs for homebuyers.
The Federal Reserve left rates unchanged at their most recent meeting, but mounting evidence of economic softening appears to be building pressure for policy adjustments. Inflation has ticked higher to 2.7% in June from 2.4% in May, though this remains relatively close to the Fed’s 2% target rate.
Housing affordability remains challenging
Despite the rate decline, housing affordability continues presenting obstacles for many potential buyers. The national median family income stands at $104,200 according to the U.S. Department of Housing and Urban Development, while the median existing home price reached $435,300 in June based on National Association of Realtors data.
Using current mortgage rates and assuming a 20% down payment, the typical monthly payment would amount to $2,231, representing approximately 26% of median family income. While this ratio falls within traditional affordability guidelines, many buyers continue finding homeownership financially challenging.
Lisa Sturtevant, chief economist at Bright MLS, observed that affordability remains a significant hurdle for prospective buyers. Many potential purchasers are waiting for both interest rates and home prices to decline before entering the market.
Mortgage activity shows early response
Initial market response to lower rates has been positive, with mortgage applications showing increased activity. Purchase applications rose 2% through Friday according to Mortgage Bankers Association data, while refinancing applications jumped 5% for the week.
Refinancing activity has been particularly strong, running 18% higher than the same period last year as homeowners take advantage of improved borrowing conditions. This surge suggests that rate-sensitive borrowers are responding quickly to the improved pricing environment.
