Mortgage Rates Drop the Most in a Year. A Big Test Comes Next Week.

Both refinance and purchase applications for mortgages rose in the past week. (Brandon Bell/Getty Images)

Key Points

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• Mortgage rates fell to 6.35%, the lowest since last October, marking the biggest weekly drop since August 2024.
• Refinance and purchase applications increased as mortgage rates decreased amid signs of economic weakness.
• Lower rates could bring back buyers who were previously priced out, potentially leading to a strong early autumn.

Mortgage rates dropped the most in a year this past week, and the decline could push more buyers to purchase a home—if the lower rate holds.

The average 30-year fixed mortgage rate measured weekly by Freddie Mac fell to 6.35% as of Thursday. It’s the lowest level since last October, and the biggest week-over-week decline since August 2024. The average dropped by 0.15 percentage point from the week prior, when the reading was 6.5%.

“Mortgage rates are headed in the right direction and home buyers have noticed,” Freddie Mac chief economist Sam Khater said in a statement.

Indeed, both refinance and purchase applications measured by the Mortgage Bankers Association rose last week as mortgage rates sunk on signs of a economic weakness. The 30-year fixed mortgage rate moves with the 10-year Treasury, which fluctuates as traders update their future expectations for the economy.

If mortgage rates hold near recent levels, buyers pushed out the market by high costs during the typically busy spring and summer homebuying season could return for a strong early autumn, Barron’s recently wrote.

For that to happen, though, rates would need to stay near recent levels or decline further. At the same time, would-be buyers would need to feel secure about their jobs.

Investors will have their eyes on coming data and commentary from the Federal Reserve following the September FOMC meeting. The central bank only controls short-term interest rates, but longer-term bond yields can move on shifting expectations for future rate cuts.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com