Mortgage rates have inched down to their lowest levels of 2025, signaling potential relief for weary homebuyers and sparking cautious optimism in the real estate market. According to the latest Freddie Mac data, the average 30-year fixed mortgage rate dropped to 6.58% from 6.63% the previous week. Meanwhile, the 15-year fixed mortgage, often favored by homeowners looking to refinance, fell more sharply to 5.71% from 6.63%. These are the lowest rates recorded since October of last year.
Although today's rates remain slightly above their historical average since 1991, many analysts believe they could decline further in the months ahead. The key driver? Shifts in the yield on the 10-year U.S. Treasury note — a benchmark that plays a pivotal role in setting mortgage rates.
Why Mortgage Rates Are Trending Lower
Mortgage rates are closely tied to the 10-year Treasury yield, with lenders adding a spread to account for the risks of lending, including inflation and broader market uncertainty. While the Federal Reserve has already cut its benchmark interest rate twice in the past year, Treasury yields stayed stubbornly elevated into early 2025, reflecting investor concerns about inflation and U.S. government debt.
Recently, however, inflation has cooled, and signs of a slowing economy have renewed investor confidence that additional Fed cuts are on the horizon. At the start of this week, the 10-year yield stood at 4.287% — down from above 4.5% just months ago. With the Fed hinting at another possible 25 basis-point cut in September, the likelihood of continued downward pressure on mortgage rates has grown stronger.
What Comes Next for Interest Rates
Looking forward, the Fed is expected to consider as many as six rate cuts through the end of 2026, though these moves will ultimately depend on economic performance. The central bank's dual mandate — keeping inflation under control while supporting maximum employment — means any surprises in the job market or price levels could alter the path.
If rates continue to fall, housing affordability could improve modestly, giving sidelined buyers a reason to re-enter the market. But the impact will likely be gradual, as home prices remain historically high.
The State of the Housing Market
Despite softer borrowing costs, the housing market remains in a holding pattern. Home prices have edged down from their pandemic-era peak: the median sales price fell to $410,800 in the second quarter of 2025, down 7.2% from the all-time high of $442,600 in late 2022, according to Federal Reserve Economic Data.
Still, many sellers are reluctant to accept lower offers. With fewer active buyers, homes are taking longer to sell, and some listings are being pulled from the market altogether. Redfin data shows that in June, home sales dipped 1.3% year-over-year, while new listings fell 3.4%.
The recent decline in mortgage rates marks a turning point after years of elevated borrowing costs. If rates continue trending lower, they could breathe life back into the housing market, enticing both first-time buyers and current homeowners considering a move. For now, buyers may find themselves with slightly more leverage, while sellers may need to temper expectations as the market adjusts to this new reality.
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