U.S. Mortgage Rates Decline Following Federal Reserve Rate Cut

U.S. mortgage rates on 30-year fixed loans declined recently, with the average rate easing to 6.26% from 6.35% the previous week. This downward trend coincides with a drop in long-term U.S. Treasury yields and follows the Federal Reserve's recent interest rate cut, its first in 2025. Similarly, 15-year fixed-rate mortgages, commonly used for refinancing, also saw rates fall to 5.41% from 5.5% the prior week.
Mortgage rates typically track the 10-year Treasury yield, which guides lenders in pricing loans. Following the Fed's quarter-point rate cut and projections of further reductions this year, mortgage rates have steadily declined since late July. This movement reflects increasing concerns over the U.S. job market and has resulted in the lowest mortgage rates since early October 2023.
This easing of mortgage rates offers some relief to the U.S. housing market, which experienced a slump starting in 2022 when rates increased from historic lows. Home sales fell to their lowest level in nearly 30 years last year, with rates remaining largely above 6.5% since then. The recent decline into the low 6% range may encourage a modest increase in home sales, although many homeowners still have mortgages with rates below 6%, limiting overall market impact.
Lower mortgage rates have prompted a significant wave of refinancing applications, particularly from homeowners who originally secured mortgages at rates above 6%. Recent data shows mortgage applications surged nearly 30% week-over-week, with refinances comprising about 60% of these applications. Demand for adjustable-rate mortgages (ARMs) is also rising, marking their highest share since 2008 as they benefit from the Fed's rate cut given their sensitivity to short-term interest changes.
The Federal Reserve's rate cut signals a gradual decrease in borrowing costs, potentially improving affordability for consumers. However, while the reduction in rates may support increased mortgage refinancing and some pickup in home sales, the broader housing market recovery is expected to be limited given the prevailing high levels of existing low-rate mortgages and other economic factors.