Rates Drop But Will Buyers Bite?

Mortgage rates sank more than 10 bps last week, but buyers are souring on the housing market as they’re battered by economic uncertainty and unaffordability.

Officials at Freddie Mac reported Thursday that the 30-year fixed-rate mortgage averaged 6.63%, down from the week prior’s 6.76%. 

This is their lowest point since September 2024 and the seventh straight week of declines.

A year ago at this time, the 30-year fixed-rate mortgage averaged 6.88%.

Fifteen-year rates also fell to 5.79% from 5.94% Last year, they were at 6.22%.

“The decline in rates increases prospective homebuyers’ purchasing power and should provide a strong incentive to make a move,” said Sam Khater, Freddie Mac’s Chief Economist.

Potential buyers jumped at lower rates last week, sending purchase applications up more than 20%. Refinances also spiked.

While rate relief is great for borrowers struggling under record unaffordability, uncertainty and economic unhappiness loom.

“Stock market volatility and weaker economic indicators have fueled expectations that the Federal Reserve will cut the Fed Funds Rate by 75 basis points this year, a notable shift from earlier projections. Investors are also preparing for a more accommodative monetary policy,” Samir Dedhia, CEO of One Real Mortgage, noted.

“Additionally, uncertainty surrounding political and economic policies has prompted a move toward bonds, traditionally viewed as safe-haven assets, contributing to the continued downward pressure on rates.”

Consumer sentiment around the housing market dropped for the first time since 2023 last month. Buyers are increasingly pessimistic that rates will continue to fall, and job uncertainty for federal employees has forced some to put their home shopping on hold.

Continued upward pressure on home prices has also soured many Americans against the market.

“While some consumers may be slowly acclimating to the higher mortgage rate environment, the vast majority continue to believe it is a ‘bad time’ to buy a home – with high home prices cited as the primary sticking point. We continue to expect home sales activity to remain relatively light over our forecast horizon due to the ongoing lack of supply and overall unaffordability,” said Mark Palim, Fannie Mae Senior Vice President and Chief Economist.

Homebuilding costs are set to surge due to President Donald Trump’s tariff war. Goods from Canada and Mexico, where builders get necessary materials like lumber and drywall, face a 25% tax. This is on top of the 14.5% already levied on Canadian lumber.