The upside of recession? Mortgage rates plunge to 15-month lows

U.S. mortgage rates tumbled last week amid growing expectations that the Fed will bail out the economy with large rate cuts beginning in September.

According to Mortgage News Daily, the average 30-year fixed-rate mortgage dropped by 0.22% to 6.4% last week—the lowest since April 2023. 15-year fixed were down to 5.89%, the lowest since May 2023.

The decline in mortgage rates followed a sharp drop in bond yields after government data showed a surprise slowdown in hiring last month.

As Creditnews reported, the U.S. economy added just 114,000 jobs in July, and the unemployment rate rose to 4.3%, the highest in nearly three years.

Matthew Graham, the chief operating officer of Mortgage News Daily, said, “The more aggressive rate cut narrative is quickly coming into focus” following the dismal nonfarm payrolls report.

Several economists are now calling for a rate cut of 0.75% in September.

The markets are “moving ahead of the Fed, bringing down longer-term rates including those for mortgages, which should lead to both more home purchases and a pickup in refinance activity,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association.

While mortgage rates are gradually declining, some experts warn that homebuyers will continue to face steep housing costs for years to come.

Not out of the woods yet

Weak housing demand this year has failed to put the lid on home prices.

According to the National Association of Realtors, the average price of an existing home rose by 4.1% in June to $426,900—the highest level on record. This came despite a 5.4% drop in home sales compared to a year earlier.

New builds aren’t providing much relief, either.

Data from the Department of Commerce showed that new home prices are still hovering around all-time highs, even as the number of completed properties hitting the market continues to soar.

“A lot of people want to dive in with 30-year rates declining, but at the end of the day, we still have a housing market that’s overly elevated as a whole,” Todd Stankiewicz, a certified financial planner and president of Sykon Capital, told MarketWatch.

Bright MLS economist Lisa Sturtevant has cautioned buyers against expecting a sustained drop in mortgage rates. She expects rates to remain above 6% for most of 2025, even as the Fed signals multiple rate cuts.

While many buyers would gladly take a 6% mortgage over the 7.79% peak rate seen earlier this year, neither rate is competitive, considering that nearly two-thirds of existing mortgages were financed at less than 4%.

Bank of America has warned that it could take up to eight years for housing conditions to improve.

According to the bank’s economists, this is how long it could take for the sizable gap between current mortgage rates and the average rate of all outstanding mortgages to narrow.