Mortgage Rates Dip

At 6.35%, mortgage rates have hit a one-year low, but affordability remains out of reach for many.

The average 30-year fixed mortgage rate has dropped to 6.35%, the lowest it’s been in nearly a year. For prospective homebuyers, this should be good news—lower rates mean more purchasing power. But in today’s housing market, it’s not quite that simple.

Despite the dip, home prices are still more than 50% higher than they were before the pandemic. This combination of high prices and relatively elevated interest rates continues to stall home sales, which are now in their third straight year of sluggish activity.

Rates Have Fallen—But Not Far Enough

The recent decline from nearly 7% earlier this year has sparked some optimism, but many buyers are still hesitant. According to housing market experts, including Wall Street Journal reporter Nicole Friedman, most buyers aren’t ready to jump back in until mortgage rates start with a “5.”

For many, the magic number seems to be 5.5% or lower. It’s not just about math—it’s also about memory. During the pandemic, mortgage rates fell as low as 3%. Those ultra-low rates are still fresh in the minds of potential buyers, especially those who watched friends or family lock in what now feels like once-in-a-lifetime deals.

The “Golden Handcuffs” Problem

Affordability isn’t just about buyers—sellers are impacted too. Millions of homeowners refinanced into ultra-low mortgage rates during the pandemic. Now, they’re reluctant to give up their 3% loans and trade up to a new home with a 6.5% mortgage. This has led to what many are calling a “golden handcuffs” situation, where people feel locked into their current homes.

That dynamic is slowly beginning to shift. As life moves on—families grow, jobs change, relationships evolve—some homeowners can no longer afford to wait. That’s starting to unlock a bit more inventory, giving buyers more options and slightly loosening the market gridlock. But it’s still a gradual process.

Some Regions Are Seeing Relief

Affordability is improving slightly in some parts of the country, particularly in areas where supply has increased the most. Think the Southeast and Southwest—especially Florida and Texas—where both new construction and forced sales have added more homes to the market.

Still, even in these regions, prices remain significantly above pre-2020 levels. A 5% or even 10% price drop isn’t enough to offset the massive gains of the last few years. For many, the numbers still just don’t add up.

First-Time Buyers Are Still Struggling

Older homeowners with equity or savings are faring better in this market, but for many first-time buyers, it still feels impossible to get in. Rising home prices, high monthly payments, and stricter lending standards have created serious barriers to entry.

Yes, the buying frenzy of 2021 is over. Bidding wars have cooled. Buyers no longer have to waive inspections or pay far above asking. In many cases, they can now negotiate better terms, ask for concessions, and even get closing costs covered.

But all of that only matters if they can qualify for a mortgage—and for many younger or middle-income buyers, today’s prices and rates make that step unattainable.

Will Rates Keep Dropping?

The recent quarter-point rate cut by the Federal Reserve has already been priced into mortgage rates, experts say. So don’t expect a sudden, sharp drop from here. Mortgage rates aren’t directly tied to Fed decisions—they’re more influenced by the bond market and long-term economic outlook.

That means lower rates might continue gradually, especially if inflation stays down. But if the Fed is cutting rates because it’s worried about the economy or job market, that could actually slow the housing market further. Buyers need low rates—but they also need stable jobs and confidence in the future.

Yes, mortgage rates are the lowest they’ve been in a year—but that doesn’t mean housing is affordable again. Prices remain high, many homeowners are still sitting on the sidelines, and first-time buyers continue to feel locked out.

The market is thawing—slowly—but don’t expect a rapid recovery. For now, every small dip in mortgage rates may help unlock a bit more movement, but it will take time, patience, and more economic stability to bring balance back to the market.