For the first time this year, the Federal Reserve cut its short-term interest rate by a quarter point. And while mortgage rates did drop this week, continuing a recent trend, some hopeful home buyers may have been expecting deeper cuts in response to the Fed’s long-anticipated move.
The 30-year fixed-rate mortgage averaged 6.26% this week, the lowest of the year, Freddie Mac reports in its weekly mortgage market survey. But mortgage rates still remain higher than a year ago, when they averaged 6.09%.
Despite the Fed’s latest rate cut, “mortgage rates may stay relatively flat in the short term since markets had already priced in this cut,” says Bill Banfield, chief business officer at Rocket Mortgage.
Plus, the federal funds rate reflects the interest rate that banks borrow and lend to one another; it’s not the rate that consumers pay. Mortgage rates are more closely tied to Treasury yields—which have been lowering over recent weeks compared to earlier in the year—and the general economy.
Adjustable-Rate Mortgages Gain Popularity
Borrowers may see immediate impact from the Fed’s action Wednesday, however, on certain loan products. For example, “consumers could benefit from lower short-term rates, making adjustable-rate mortgages—which closely follow the Fed’s moves—more attractive,” Banfield says.
The share of ARM mortgage applications is surging, comprising about 13% of all mortgage applications in the latest week—the highest level since 2008, the Mortgage Bankers Association reported this week.
“ARMs typically have initial fixed terms of five, seven or ten years, so those loans do not pose the risk of early payment shock that pre-2008 ARMs did,” says Michael Fratantoni, MBA’s chief economist. “Borrowers who do opt for an ARM are seeing rates about 75 basis points lower than for 30-year fixed rate loans.”
Mortgage Rate Averages This Week
Overall, mortgage applications for a home purchase have been responding to lower rates over recent weeks—with applications up 3% in the latest week and continuing to climb by double-digit margins compared to a year ago—moving 20% higher in the latest report, according to MBA. The uptick in mortgage applications can be a gauge of future home buying activity, but so far that rise has not translated into a meaningful increase in closed home sales. Existing-home sales were up 2% in July month-over-month—only a 0.8% increase in sales year-over-year, National Association of REALTORS® data shows. NAR will be releasing its latest report on existing-home sales for August on Sept. 25.
Freddie Mac reports the following average mortgage rates for the week ending Sept. 18:
- 30-year fixed-rate mortgages: averaged 6.26%, dropping from last week’s 6.35% average. A year ago, 30-year rates averaged 6.09%
- 15-year fixed-rate mortgages: averaged 5.41%, falling from last week’s 5.50% average. Last year at this time, 15-year rates averaged 5.15%.
