US Mortgage Rates at Lowest Since May 2023... A Sign of Housing Market Revival?

Criticism That It Is "Still at a High Level"

U.S. mortgage rates have fallen to their lowest level since May 2023. This reflects expectations that the Federal Reserve (Fed) will cut the benchmark interest rate in September.

The Mortgage Bankers Association (MBA) reported on the 7th (local time) that the average rate for a 30-year fixed mortgage was 6.55% as of the fifth week of last month. This is the lowest rate since May 10 of last year (6.48%).

Mortgage rates dropped by 27 basis points (1bp = 0.01%P) in just one week. Major foreign media explained that this is the largest decline in the past two years.

The significant drop in mortgage rates is attributed to expectations of a Fed pivot (policy shift) in September after maintaining a high-interest rate monetary policy for over two years. On the 2nd, employment data that fueled recession concerns was released, leading to analyses that the Fed might implement a big cut. Typically, mortgage rates are influenced by bond yields linked to the benchmark interest rate.

Some expect that the sharp decline in mortgage rates could revive the sluggish U.S. housing market. Currently, the housing market is experiencing a shortage of listings because property owners who bought homes with long-term fixed rates during the low-interest period before COVID-19 are reluctant to refinance with new loans. As a result, housing prices are soaring.

However, despite the significant drop in mortgage rates, some point out that the rates are still high, so it may take a long time for the housing market to gain momentum. According to government mortgage agency Freddie Mac, 6 out of 10 U.S. mortgage loans are currently executed at rates below 4%. This means that for the housing market transactions to become active, mortgage rates need to fall much further from the current level.