Mortgage Rates Tumble, Borrowers Rejoice — But Is the Mortgage Rate Crash Too Good to Last?

US mortgage costs eased again at the start of September. Freddie Mac's survey put the average 30-year fixed rate at 6.50% for the week ending 4 September, then 6.35% a week later, the lowest since last autumn and a sharp weekly fall.

Refinance interest picked up as borrowers moved to lock deals. Whether the downtrend endures now hinges on inflation and the Federal Reserve's 16–17 September policy meeting.

Rates Hit 11-Month Low

The dropping of fixed-rate mortgage (FRM) to the lowest point in 11 months, as per Freddie Mac data, marks a continuation of a downward trend that has seen rates remain below 7% for 34 consecutive weeks.

'Mortgage rates continue to trend down, increasing optimism for new buyers and current owners alike,' said Sam Khater, chief economist at Freddie Mac.

The dip has also led to a surge in refinancing activity, with nearly 47% of mortgage applications now aimed at refinancing, which is the highest share since October 2024.

What's Driving the Decline?

Several factors are contributing to the rate drop. Chief among them is speculation that the Federal Reserve may cut interest rates at its upcoming September meeting, with futures-based models suggesting a moderate likelihood.

Analysts at Forbes note that such a move could help push mortgage rates further into the low 6% range, though any relief may be temporary and dependent on inflation continuing to ease..

The cooling of inflation is also playing a role. While still above the Fed's 2% target, headline inflation currently sits at 2.7%, with core inflation (excluding food and energy) at 3.1%. If inflation continues to ease, mortgage rates could follow suit. However, any uptick in inflation could reverse the trend and send rates climbing again.

Economic indicators, such as job growth and consumer spending, are also being closely monitored. A strong economy typically pushes rates higher, while signs of slowdown, including a potential recession, could prompt further rate cuts.

Borrowers Rush to Refinance Amid Rate Dip

The recent fall in mortgage rates has triggered a surge in refinancing activity, as homeowners seek to capitalise on the lowest levels seen in nearly a year. With average 30-year fixed rates now hovering around 6.5%, many borrowers who previously locked in loans above 7% are revisiting their options to reduce monthly payments or shorten loan terms.

Industry analysts note that refinancing enquiries have increased notably since early September, driven by expectations of a potential interest rate cut by the Federal Reserve. The prospect of further easing has added urgency for borrowers hoping to secure more favourable terms before any reversal in the trend.

While refinancing volumes are climbing, purchase activity appears more subdued. 'Lower rates were not enough to entice more homebuyers back into the market, as purchase applications were only up around one per cent over the week, although still stronger than last year's pace,' said Joel Kan, Vice President and Deputy Chief Economist at the Mortgage Bankers Association.

Affordability remains a key challenge, particularly for first-time buyers facing elevated home prices and limited inventory. Lenders are advising borrowers to act swiftly, as the current rate environment may not last. With the Federal Reserve's next policy meeting scheduled for 16–17 September, any shift in tone or guidance could influence mortgage pricing almost immediately.

Is the Crash Too Good to Last?

Despite the optimism, experts caution against assuming the rate decline will continue indefinitely. Mortgage rates are notoriously volatile and influenced by a complex mix of monetary policy, global markets, and domestic economic data.

Tony Julianelle, CEO of Atlas Real Estate, offered a measured outlook: 'I'm cautiously optimistic that mortgage rates will inch lower in September as the Fed leans toward rate cuts, but I'm not anticipating a home-run drop.'

Moreover, geopolitical factors, including trade tensions and energy prices, could disrupt the current trajectory. President Trump's tariff policies, for example, have been flagged by analysts as a potential inflationary trigger that could force the Fed to hold or even raise rates again.

What Should Borrowers Do?

For those considering a home purchase or refinance, timing is key. Experts recommend locking in rates now if the numbers work, especially for borrowers with strong credit profiles who can secure the most competitive offers.

'Think of it as a rollercoaster,' wrote Marco Santarelli in a recent mortgage rate forecast. 'We went up, and now we might be heading down a bit.'

Key Risks That Could Reverse The Dip

• Stronger data on jobs or spending that lifts Treasury yields.
• Sticky core inflation near 3% that restrains policy easing.
• Market disappointment if the Fed's guidance skews less dovish than expected.
  Recent pieces from Barron's and AP underscore that the latest drop followed weaker macro signals, not a structural shift. A rebound is possible if the data turns.

Bottom Line For Borrowers

Rates are the best in months, and refinancing has reopened for many households.

If the monthly savings work at today's quote and costs pencil out, locking in now is rational; waiting for sub-6% requires a softer economy or faster disinflation, neither of which is guaranteed. Watch CPI, labour data and the Fed next week for the next move.