Mortgage rates hit 10-month low. Will buyers bite? 

The recent drop in mortgage rates has prompted more homeowners to refinance their loans, but it remains to be seen whether the downward trend is tempting enough to spur potential buyers to action.

The 30-year fixed-rate mortgage averaged 6.58% this week, according to Freddie Mac's weekly survey. Though rates are now at the lowest level since late October 2024, they are still higher than this time last year. 

Much of the recent decline occurred after a weak jobs report and mixed inflation data bolstered hopes that the Federal Reserve would start cutting short-term interest rates in September. But those hopes took a hit this week as the U.S. Labor Department reported that producer prices rose 0.9% in July, much higher than the 0.2% consensus forecasts.

If mortgage rates continue to drop despite sticky inflation indicators, future buyer activity will depend on local market conditions and buyers' financial circumstances, according to Lisa Sturtevant, chief economist at Bright MLS.

"Markets with more inventory and more room for buyers to negotiate on price could see more buyers taking advantage of slightly lower rates," Sturtevant said. "In addition, higher-income buyers who are feeling more economically secure right now may jump on lower rates. The downtick in rates may not ease the affordability hurdle of other first-time and moderate-income buyers."

Refinance applications surge

The lower rates are leading to leaps in refinance applications, according to the Mortgage Bankers Association. For the week ending on Aug. 8, mortgage applications jumped 10.9% overall compared to the week before — but while the refinance index jumped 23% week-over-week, the purchase index only rose 1%.

The week's showing was the strongest for refinance activity since April, noted Joel Kan, MBA's vice president and deputy chief economist.

"Refinances accounted for 46.5 percent of applications and as seen in other recent refinance bursts, the average loan size grew significantly to $366,400," Kan said, adding that borrowers with larger loans "continue to be more sensitive to rate movements."

Hope for a fall revival?

While the summer season has been "seriously sluggish," recent years have shown that the housing market can rally in the fall months, according to Realtor.com Senior Economist Joel Berner.

"As we saw at the end of last year, buyers are responsive to rates coming down and further downward progress could lead to a similar late-year buying surge in 2025," Berner said.

But current mortgage rates have already priced in a potential September rate cut, so waiting for them to drop further may not help buyers, added Chen Zhao, Redfin's head of economics research.

"That means that mortgage rates are unlikely to drop any further when the Fed actually makes the expected cut," Zhao said. "And the window to snag a mortgage rate in the mid-6s may be limited: Increased rate volatility is expected in coming weeks as new economic data is released."

Buyers don't seem to be taking advantage of that window just yet. Even with depressed demand, median home prices are up 2.1% year-over-year — and pending sales are slower than this time last year, according to Redfin's rolling four-week report.

Inventory growth dropping off

Inventory growth has meanwhile slowed and may already be starting its seasonal downward trend, according to Mike Simonsen, chief economist at Compass. 

In his weekly report, Simonsen explained that overall inventory dropped this week — and though he said it's too early to dub this a trend, new listings are also ticking down.

"Even accounting for seasonality, it seems that sellers are deciding to hold back until conditions are more favorable," he said.