Mortgage rates have continued to decline for the third consecutive week, a trend attributed to hesitancy among businesses to expand their workforce. As of the week ending October 16, the average rate for a 30-year fixed mortgage dropped by 14 basis points to 6.11% APR, according to data from Zillow.
This downward movement is significant, considering just three weeks prior, the average rate stood at 6.35%. The fluctuations in mortgage rates this year have largely been influenced by two competing economic trends: inflation, which has historically driven rates higher, and a slowdown in job creation that has eased upward pressure on rates.
Since the beginning of August, concerns about a potential slowdown in the labor market have become more pronounced. Christopher Waller, a Federal Reserve governor, highlighted this concern during an interview on CNBC, suggesting that the weak labor market could lead to rate cuts by the Federal Reserve. Similarly, Jerome Powell, the Fed’s chair, remarked on October 14 that the employment landscape is less dynamic, with an increasing risk of rising unemployment.
The Federal Reserve has the capability to influence mortgage rates indirectly through its management of the federal funds rate. When companies reduce hiring, the Fed tends to lower this rate to stimulate economic activity by making borrowing cheaper. Following the Fed’s recent cut in September, market expectations suggest further reductions may be forthcoming during the upcoming meetings on October 28-29 and December 9-10.
For homebuyers and those looking to refinance, this presents both challenges and opportunities. Even with declining mortgage rates, affordability remains a significant hurdle, as noted by Kara Ng, a senior economist at Zillow Home Loans. She anticipates that while rates may inch lower through 2026, buyers will still face a tough market. However, the current situation has shifted some negotiating power back to buyers, as homes are lingering on the market longer.
For those considering refinancing, lower rates can create advantageous opportunities, particularly for homeowners whose initial rates exceeded 7%. Reducing an interest rate by half a percentage point or more can make refinancing an attractive option as market conditions evolve.
Overall, while the labor market’s current state raises concerns, the falling mortgage rates offer a potential silver lining for buyers and homeowners looking to refinance, hinting at a more favorable borrowing landscape in the near future.