If you’re a prospective home buyer waiting for lower mortgage rates, you might consider applying for a loan now. In mid-September 2025, mortgage rates posted their largest weekly decline in a year. Those falling rates are driving more home buyers to apply for mortgage loans.
“Mortgage rates are headed in the right direction, and home buyers have noticed. Purchase applications reached the highest year-over-year growth rate in more than four years,” says Sam Khater, chief economist at Freddie Mac.
What Caused Mortgage Rates to Drop?
Mortgage rates fell for the second consecutive week after Treasury yields declined. The catalyst was a weakening labor market, says Joel Kan, economist for the Mortgage Bankers Association. Media reports reinforced the idea of a weaker labor market on Sept. 9, when they announced a revised job report. Employers added 911,000 fewer jobs in the year preceding March 2025 than the Labor Bureau initially announced.
Some home buyers are turning to adjustable-rate mortgages for more relief. “ARM rates were considerably lower than fixed-rate loans,” Kan says.
What Might Be Ahead for Mortgage Rates
The Federal Reserve lowered its benchmark interest rate by 0.25 percentage points — to 4% to 4.25% — on Sept. 17, its first cut since Dec. 2024. The Fed released a statement that "recent indicators suggest that growth of economic activity moderated in the first half of the year."
The Fed’s actions don’t set mortgage rates, but they can affect them. “As we look at possible reductions in the Fed Funds rate, we could see a domino effect into the mortgage market. But it’s not a one-to-one, and it won’t necessarily happen overnight,” Jessica Lautz, deputy chief economist at the National Association of REALTORS®, told Real Estate Today before the Fed's announcement.
Some economists believe the slowing job market could prompt the Fed to make several rounds of short-term interest rate cuts in the coming months. “The long-term rates, including mortgage rates, are already falling to near 12-month lows,” Lawrence Yun, NAR’s chief economist, notes in the Economists’ Outlook blog.
Higher mortgage rates have been blamed for curtailing the housing market in spring and summer 2025. Lower mortgage rates could be what the market needs to boost home sales, Yun adds.