MW Mortgage rates dip ahead of the Fed meeting. 3 experts weigh in on whether they could go down to 6%.

By Aarthi Swaminathan

The 30-year fixed-rate mortgage fell 5 basis points over the past week, industry group says

Mortgage rates fell slightly ahead of this week's Federal Reserve meeting as the U.S. economy showed signs of weakening. Home buyers "surprisingly" returned to the market, one industry group said.

The 30-year fixed-rate mortgage fell 5 basis points, as economic data indicated weakness in the U.S. economy due to the Trump administration's continued tariffs on imported goods.

Read more: GDP shrinks for first time in 3 years as Trump tariffs trigger record trade deficit. Tip of the iceberg?

The 30-year mortgage dropped to an average contract rate of 6.84% as of May 2. The dip energized homeowners who were looking to refinance or to buy a bigger property. The data came from a weekly report by the Mortgage Bankers Association, an industry trade group.

Purchase activity, which refers to home buyers applying for mortgages to purchase a home, rose 11.1% from a week before.

The data suggests that current homeowners are coming back to the market. Even though mortgage rates remain volatile and the economic climate is uncertain, the volume of conventional mortgages increased significantly by 13% in one week and was "surprisingly strong," the MBA said.

The group said that borrowers of conventional loans tended to have larger loan sizes, and were more likely to be repeat buyers who were selling their current place and moving to a bigger home, a more expensive property or to a more desirable neighborhood.

Refinance activity also rose 11.1% from a week prior. Refinance demand has been sensitive to rate drops, as MarketWatch has previously written.

Mortgage rates varied across the board

Mortgage rates were mixed over the past week.

The average contract rate for a 30-year mortgage for homes sold for $806,500 or less was 6.84% for the week ending May 2. That was down 5 basis points from the previous week.

The rate for jumbo loans, or a 30-year mortgage for homes sold for over $806,500, was 6.86%, up 2 basis points from the previous week.

The average rate for a 30-year mortgage backed by the Federal Housing Administration was 6.56%, down 5 basis points from a week before. Those loans are often used by first-time home buyers.

The average 15-year mortgage rate was unchanged at 6.17%.

The average rate for five-year adjustable-rate mortgages was up 8 basis points, to 5.97%, from the previous week.

When will mortgage rates fall significantly?

As the U.S. housing market continues to sag under the weight of 7% mortgage rates, what will it take for the 30-year mortgage rate to fall significantly to 6%?

Three experts told MarketWatch that it would take a combination of a slowing economy, higher unemployment and a Fed rate cut to trigger a big drop in mortgage rates.

Either "inflation needs to come down meaningfully, or the economy needs to show sustained weakening," Greg McBride, chief financial analyst at Bankrate, told MarketWatch. But at this point, "neither is happening," he added.

And even though a weakening economy might be good news on the rates front, it could also mean that more people are losing their jobs, leaving them unable to afford a home. "A weakening economy falls under the category of 'careful what you wish for,'" McBride said.

Others were equally pessimistic about a big drop in mortgage rates. "Rates could begin trending lower later this year as the economy cools and inflationary pressures ease," Adam Phillips, managing director of investments for EP Wealth Advisors, told MarketWatch. But a drop toward the 6% level is "unlikely before 2026," unless the U.S. economy sees a "material deterioration," he added.

Fannie Mae (FNMA), a housing-finance giant, expects the 30-year mortgage to average at a rate of 6.3% in the third quarter of this year, and fall to 6.2% in the last quarter.

On the other hand, a better-performing economy could usher in significantly lower rates, Danielle Hale, chief economist at Realtor.com, told MarketWatch.

(Realtor.com is operated by News Corp subsidiary Move Inc.; MarketWatch publisher Dow Jones is also a subsidiary of News Corp.)

If the U.S. economy continues to grow, the labor market holds up and inflation remains at the Federal Reserve's desired 2% level, the central bank will adjust its policy accordingly, she explained, which could push the 30-year rate down.

But the Trump administration's tariffs remain a big obstacle to achieving that. The tariffs on imported goods could slow the U.S. economy's growth, increase unemployment as well as consumer prices, "raising questions about the best direction for monetary policy and thus interest rates," she said

With rates still close to 7%, the average buyer needs to earn six figures to afford a typical home. To comfortably afford a median sales price of $403,700 with a 30-year mortgage rate of 6.76%, which was Freddie Mac's average, a home buyer would need to earn an annual income of $106,750, according to Hale's calculations.

That figure assumes that the buyer was putting down 20% of the home's sale price, and ensured that the mortgage payment - comprised of the principal, interest, taxes and insurance payments - was less than 30% of the buyer's income.

-Aarthi Swaminathan

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May 07, 2025 07:00 ET (11:00 GMT)

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