Mortgage rates tumble, but where are the buyers? 

Mortgage interest rates dropped to the lowest level in 15 months this week, so the big question now is whether they've fallen enough to get potential homebuyers off the sidelines.

The 30-year fixed-rate mortgage averaged 6.47% this week, according to the latest Freddie Mac survey. That's down from 6.73% a week ago. The 15-year fixed-rate averaged 5.63%, down from last week's 5.99%.

The huge drop followed a weaker-than-expected jobs report and other economic turbulence — but it was probably an overreaction to the market, said Sam Khater, Freddie Mac's chief economist.

If Khater is right, the decline may be short-lived. Mortgage News Daily reported a steady rise in rates over the past few days, averaging 6.63% on Aug. 8.

Increased buyer leverage

Will buyer activity start to pick up?

"The decline in mortgage rates does increase prospective homebuyers' purchasing power and should begin to pique their interest in making a move," Khater said.

But so far, falling rates haven't resulted in a surge in mortgage purchase applications, according to the Mortgage Bankers Association, although there was a jump in refinance applications. Homebuyers could be waiting for rates to drop further, said Joel Kan, deputy chief economist at the association.

And that could happen in the second half of the year, but it will be a bumpy ride, said Lisa Sturtevant, chief economist for Bright MLS. Since potential homebuyers didn't jump when rates began falling five weeks ago, they may remain patient.

"Buyers are flexing a bit. While it is most certainly not a buyer's market, it has been a long time since buyers have had this much leverage in the market," Sturtevant said.

Seasonal factors, affordability

Real estate is all about location — and timing. The drop in mortgage rates might simply be hitting at the wrong moment for some buyers. Schools are starting up in the coming weeks, and families may be reluctant to switch districts.

"It could be that this late in the season, there are not that many buyers motivated," said Mike Simonsen, founder of Altos Research in his weekly update. "That wouldn't surprise me at all."

For those who are motivated, however, lower rates are improving affordability, said Jessica Lautz, deputy chief economist at the National Association of Realtors. She noted that the current average monthly payment is $285 lower than in October 2023, when rates were at 7.79%. Lautz acknowledged that rates are just one component of affordability, and home prices are still high.

Which helps explain why the declines aren't moving the needle for many current renters, said Odeta Kushi, deputy chief economist at First American. In a post on X, Kushi noted that a decline in mortgage rates from 6.75% to 6.5% only raises the percentage of renters who can afford a median priced home from 28.9 to 30.

"Affordability remains constrained, and while inventory has picked up, it's still historically low," Kushi said.

Inventory continues to climb

Sellers appear to be watching mortgage rates as well. Redfin reported that new listings are up 5.9% year-over-year, the biggest increase in five weeks.

But that rate of growth might not be enough to shift market dynamics, as supply remains low compared to recent years, said Simonsen.

"The seller's pace is still very restricted," Simonsen said. "Until we see new listings pick up, we should see a cap on inventory growth."