30-Year Mortgage Drops to 6.35%—Lowest in Nearly a Year—as Markets Bet on Fed Cut

Borrowing just got a little less painful. The average rate on a 30-year fixed mortgage fell to 6.35% this week, down from 6.50% a week ago and the lowest since last October, according to Freddie Mac. A year ago, the 30-year averaged 6.20%.

The popular 15-year fixed also eased, sliding to 5.50% from 5.60% (it was 5.27% a year ago).

Mortgage rates don’t move in lockstep with the Fed, but they shadow the 10-year Treasury yield, which slipped to around 4.0% Thursday afternoon. Investors are bracing for the Federal Reserve to cut its benchmark rate next week, and that anticipation has pulled long-term yields — and mortgage pricing — lower since late July.

The Fed has held its policy rate steady all year, wary that inflation could reignite (especially with tariff pressures), but Chair Jerome Powell recently signaled cuts are on the table as the job market cools. Weak data have piled up: the economy added just 22,000 jobs in August, and revised figures show hiring was much weaker over the past year than earlier reports suggested. Jobless claims have also ticked higher — another sign the labor picture is softening.

Housing’s been in a funk since rates spiked in 2022, with the 30-year hovering above 6.5% for much of this year. This week’s drop puts the average at its lowest since Oct. 10 (6.32%). And buyers noticed: Mortgage applications jumped to a three-year high last week, with refinances making up nearly half of all apps as homeowners rush to shave monthly payments.

A quick reality check: markets often “price in” Fed moves ahead of time, so a rate cut doesn’t guarantee mortgage rates keep falling. In fact, we’ve seen this movie before — rates dipped into a Fed meeting last September, then rebounded above 7% by mid-January.

“We should not expect rates to drop much further, and there’s a real possibility they rise after the Fed cut,” said Lisa Sturtevant, chief economist at Bright MLS.

If you’re buying, slightly lower rates improve monthly affordability, but they can also lure more competitors into a market still short on inventory. Run the numbers, get pre-approved, and be ready to move quickly if a home fits your budget.

If your current rate starts with a 7, a refi quote could make sense. Watch lender fees and breakeven timelines.

The central bank doesn’t set mortgage rates, but its decisions sway bond investors’ appetite for 10-year Treasurys, which lenders use to price home loans. Next week’s Fed call — and the guidance that comes with it — will set the tone for where mortgages head into fall.

AP, CNN, FOX Business, and NPR contributed to this report.