Housing News

Mortgage Rates Dropped. Will They Fall Even Further This Year?

Mortgage interest rates recently came down—and many homebuyers and homeowners are wondering if they will fall further.

Rates had been hovering around 6.8% for 30-year, fixed-rate loans since June, according to Mortgage News Daily. But after weaker labor market data was released on Friday, mortgage rates fell to the high 6.5% range, according to the publication.

As of Thursday, rates were averaging 6.55%, according to Mortgage News Daily.

One of the reasons rates are lower is because the U.S. Federal Reserve is now expected to cut interest rates twice this year. And while the Fed’s federal funds rate is separate from mortgage rates, the two typically move in the same direction.

The Fed held rates steady in July as it waits to see the impact President Donald Trump’s administration will have on inflation. It typically raises its rates to combat inflation but lowers them to give the economy a boost. The latest jobs report showed employment is slowing. 

“The economy is slowing down much quicker than what the Fed or mainstream economists have stated,” said Jason Obradovich, chief investment officer at New American Funding. “That caused a very fast reduction in rates.”

“There are some economists already sounding the alarm that the [Fed] should drop rates now and others who have stated that if the next job report comes in equally as weak, the Fed may need to drop rates not [a quarter percentage point,] but [half a percentage point] in response,” Obradovich said.

The Fed is expected to base its decisions on whether to cut rates on economic data.

“Last summer, we saw similar bad jobs data and rates fell rather quickly in response,” said Obradovich.

Then rates quickly rose again.

“The only item that is holding rates from falling further today is the uncertainty around inflation and if the tariffs will drive it up from its current level,” said Obradovich. “So far, we haven’t seen any spikes in inflation, so the market is cautiously optimistic.”

Further drops in mortgage rates aren’t guaranteed, said Greg McBride, chief financial analyst at Bankrate.com.

“There’s a lot of runway between now and the September [Fed] meeting,” said McBride. “The odds of a rate cut have gone up pretty significantly in the past few days, but there’s still a lot of economic data to be released between now and when the Fed meets.”

Lower mortgage rates might not make homebuying as affordable as homebuyers would prefer. That’s because if more people start attending open houses and putting in offers, home prices are likely to rise due to the additional competition.

Even if rates were to plunge, that wouldn’t necessarily be a good thing.

The only reason the Fed would dramatically lower rates would be if there was something significantly wrong with the economy. In that kind of environment, many people are likely to put their homebuying plans on hold until they feel like their jobs are stable.

“What prospective buyers would be served better by a slow steady decline of rates that doesn’t spur a surge in demand that would push prices up,” said McBride.