The average 30-year fixed mortgage rate in the US dropped to 6.67% from 6.69% a week earlier, marking the first decline after five straight weeks of rising rates, according to Freddie Mac data released this week [1, 2, 3]. Despite the small decrease, mortgage rates remain the highest they have been in over a year [1, 2, 3].
The rate decline coincided with fresh economic data showing a cooling labor market and moderating inflation. July’s employment report revealed weaker hiring and unexpected job cuts, easing pressure on the Federal Reserve to tighten monetary policy further [1, 2, 3]. Inflation also slowed for the second consecutive month in July, driven by falling energy, gasoline, and grocery prices compared to June [1, 2, 3]. A key measure of core inflation hit a five-year low matching February’s level [1, 2, 3].
The easing inflation and labor data have shifted market expectations about upcoming Fed actions. The odds of a 0.25 percentage point interest rate hike at the Fed’s September meeting fell to 38% from 48%, according to CME Group’s FedWatch tool [1, 2, 3].
However, housing demand remains weak amid lingering high mortgage rates and economic uncertainties. US home sales fell 4.1% in July to their lowest level in nearly two years [1, 2]. Joel Berner, Realtor.com’s senior economist, noted, “There is little downward pressure on mortgage rates between a Middle East conflict that’s keeping inflation high and a Federal Reserve that’s laser-focused on driving that inflation lower. Current mortgage rate levels may become quite familiar in the months ahead.” [1]
Oil markets add to inflation concerns. Negotiations between Tehran and Washington remain deadlocked over the Strait of Hormuz, keeping oil prices elevated. The oil supply shortfall this quarter is now projected at 1.8 million barrels per day—more than double earlier estimates—pushing Brent crude prices near $87 per barrel [1, 2].
Freddie Mac first reported the decline in mortgage rates on August 13 and confirmed the data with a statement on August 14 that included commentary on inflation and labor market trends [1, 2]. The upcoming Federal Reserve meeting in September will be closely watched for policy moves amid the uncertain economic backdrop.
