Interest rates on 30-year U.S. mortgages fell last week by the most in two years, reaching their lowest level since May 2023. This led to a sharp increase in refinancing applications.
The contract rate for a 30-year fixed-rate mortgage fell 27 basis points to 6.55% in the week ended Aug. 2, according to Mortgage Bankers Association data released Wednesday. At the same time, the rate for a five-year adjustable-rate mortgage fell 31 basis points to 5.91%, the lowest this year.
An index for refinancings rose nearly 16% last week to a two-year high of 661.4. Mortgage applications to buy a home also rose 0.8% for the first time in a month. The overall index of applications, which includes both categories, climbed 6.9% last week to its highest level since the beginning of the year.
Thomas Ryan, North America economist at Capital Economics, said in a note that the decline in interest rates “should pave the way for a modest recovery in transactions over the remainder of the year, assuming recession fears prove unfounded, as we expect.” He added: “We believe this marks a turning point for the housing market, which has been frozen for some time.”
Mortgage rates track U.S. government bonds, and Treasury yields fell sharply late last week after a disappointing jobs report fueled expectations that the Federal Reserve may pursue more aggressive rate cuts. The resulting rally sparked debate over whether the central bank will deliver a 50 basis point rate cut at its September meeting, but policymakers are likely to refrain from making such a move.
The average 30-year mortgage rate is now 0.74 percentage points below this year’s high of 7.29% in April. Despite this positive trend, rising home prices continue to pose a challenge for potential buyers. A further increase in home listings could limit price growth and revive sales of existing homes.
The MBA survey, conducted weekly since 1990, uses data from mortgage bankers, commercial banks and savings associations. The data includes more than 75% of all retail residential mortgage applications in the United States.
