Mortgage rates dipped this week to a recent low, with analysts predicting a sharper drop in the coming months that could motivate potential home buyers.
The average rate on 30-year mortgages, the most popular home loan in the United States, fell slightly to 6.46 percent this week, Freddie Mac reported on Thursday. That was only a slight decline from the 6.49 percent average a week earlier, but was the lowest level since May 2023.
Mortgage rates, which stood at around 3 percent in late 2021, began climbing when the Federal Reserve started raising its benchmark rate to combat inflation, reaching levels not seen in two decades. The 30-year rate has been steadily easing since April, when it rose above 7 percent.
Sam Khater, chief economist at Freddie Mac, said mortgage rates hovering below 6.5 percent over the past two weeks had not been enough to prompt a significant uptick in home purchases.
“We expect rates likely will need to decline another percentage point to generate buyer demand,” Mr. Khater said in a statement.
More significant relief could be on the horizon. The Fed is expected to start lowering interest rates in September, after holding them at 5.3 percent for the past year. Although the Fed’s benchmark rate and mortgage rates aren’t directly connected, a Fed rate cut could indirectly put even more downward pressure on mortgages.
And while borrowing costs remain twice as high as three years ago, there is some evidence that home buyers are starting to respond to the small but steady decline. Existing-home sales rose above expectations in July after four consecutive monthly declines, according to data released on Thursday by the National Association of Realtors. The 1.3 percent increase lifted sales to a seasonally adjusted annual rate of 3.95 million units.
Consumers are “definitely seeing more choices” as affordability improves, Lawrence Yun, the association’s chief economist, said in a statement. But existing home sales are still down 2.5 percent from the prior year.
“Despite the modest gain, home sales are still sluggish,” Mr. Yun said.
Potential home sellers also continue to feel locked into lower rates on their existing loans, keeping their houses off the market. The median existing-home owner has a rate below 4 percent, said Chen Zhao, who leads the housing economics team at the real estate services company Redfin.
More homeowners are starting to list their properties for sale to keep up with demand, Skylar Olsen, chief economist at Zillow, said in a statement. But the number of homes available at any given time is still lower than before the pandemic, she said.