Mortgage rates are cooling off, but the policy debate is just heating up

Housing professionals and consumers have reasons to celebrate this week as the 30-year fixed mortgage rate reached its lowest point of 2025. It’s a particularly interesting development given that the Federal Reserve has yet to cut benchmark rates this year, and mortgage rates could soon move even lower if some policymakers get their way.

On Tuesday, HousingWire’s Mortgage Rates Center showed that the average rate for 30-year conforming loans was 6.86%, down 5 basis points in the past week. Rates for 30-year loans through the Federal Housing Administration (FHA) were also down 5 bps to 6.55%, while rates for jumbo loans shed 7 bps to reach 6.46%.

Mortgage News Daily — which bases its data on rates quoted to borrowers with the best credit profiles — reported that the 30-year fixed rate dropped to 6.57% this week. That’s the lowest figure since October 2024. Conversely, HousingWire’s data powered by Polly — which relies upon locked loan rates across all borrower credit profiles — shows that the 30-year rate bottomed out this year at 6.69% in April, not long after President Donald Trump’s global tariff announcement.

Last week, the Fed once again held its policy rate steady at a range of 4.25% to 4.5%. But more signs are emerging that the cuts projected at the start of the year are likely to happen sooner rather than later.

Opposing views at the Fed

Two members of the Federal Open Market Committee — Christopher Waller and Michelle Bowman — dissented from the FOMC’s decision last week and voted for a 25-bps rate cut. Waller and Bowman have been vocal of late about their reasons for dialing back.

“I believe that the wait-and-see approach is overly cautious, and, in my opinion, does not properly balance the risks to the outlook and could lead to policy falling behind the curve,” Waller said in a statement last week.

“The price effects from tariffs have been small so far, and since we will likely not get clarity on tariff levels or their ultimate impact on the economy over the course of the next several months, it is possible that the labor market falters before that clarity is obtained — if it ever is obtained.”

The July jobs report from the U.S. Bureau of Labor Statistics — which was released two days after the FOMC’s meeting — was a surprise. The 73,000 jobs added last month were well below the 100,000 expected by economists, and the numbers for May and June received larger-than-normal negative revisions.

That news prompted HousingWire Lead Analyst Logan Mohtashami to declare that a September rate cut is a growing possibility. He posited that if the jobs report had been released two weeks earlier, the Fed would have cut rates.

Bowman also issued a statement in the wake of the Fed’s decision and pointed to potential cracks forming in the economy’s foundation.

“Total payroll employment continued to increase moderately, and the unemployment rate remained historically low in June,” Bowman said. “However, the labor market has become less dynamic and shows increasing signs of fragility.

“The employment-to-population ratio has dropped significantly this year, businesses are reducing hiring but continue to retain their existing workers, and job gains have been centered in an unusually narrow set of industries that are less affected by the business cycle, including health care and social services.”

What should the housing industry expect?

Tim Lawlor, chief financial officer for real estate investment lender Kiavi, said in prepared remarks that mortgage rates may not have to move much lower to see some immediate and positive market impacts.

“There are a lot of people on the sidelines,” Lawlor said, pointing to the “historically low” pace of existing-home sales. “If you look at last year, there were a couple points in ‘24 where the signals from the Fed were that more cuts were coming.

“The 10-year (Treasury) and mortgages did drop, and there was a pretty quick mortgage application uptick. So, if mortgage rates start to fall, I think you’d see that buyer demand surge pretty immediately.”

Lawlor went on to say that prospective borrowers who expect rates to drop further should prepare now so they can pounce when the timing is right.

“Look into having a preapproval and relationship with the lender,” he said. “They understand the buy box you’re looking for. The preapprovals might only be for 30 or 45 days, and they’re sometimes tied to the specific homes or (geography) you’re looking for — but it is a lot easier to constantly refresh with that lender as mortgage rates come down rather than starting from scratch, particularly when these mortgage originators become busier and busier.”

Interest rate traders have become highly bullish that a rate cut is on the near horizon, according to the CME Group’s FedWatch tool. As of Tuesday, 87% are calling for a 25-bps decrease from the Fed next month.

Uncertainty in the market

But Lisa Sturtevant, the chief economist for Bright MLS, cautioned that the decision is not cut and dried. There are “other factors still in play that could just as easily keep mortgage rates higher,” she said.

“If inflation does not continue to fall, that could prop up mortgage rates. And if investors believe the Fed cut rates under pressure from the Trump administration, that will also drive mortgage rates higher,” Sturtevant said in written commentary.

“There is still going to be a lot of uncertainty for home buyers and sellers in the second half of the year. That uncertainty — perhaps even more so than where mortgage rates land — will be the primary reason to expect home sales activity to continue to be sluggish in the coming months.”