[August 21, 2025] Interest Rates Hit 10 Month Lows, High Chance of September Rate Cut

Mortgage rates have shown some encouraging movement, reaching their lowest level in nearly 10 months. The average rate on a 30-year fixed mortgage fell to 6.68% in August, according to Mortgage Bankers Association. This decline has spurred significant activity, particularly among homeowners looking to refinance, accounting for 47% of all submissions in the recent week. Applications for adjustable-rate mortgages (ARMs) also rose to their highest level since 2022, suggesting that some borrowers are looking for creative ways to manage affordability.

The two most closely watched inflation metrics—Core Personal Consumption Expenditures (Core PCE) and the Consumer Price Index (CPI) — have remained relatively flat over the last two months. The components of the indices show a mixed bag of indicators giving encouraging signs to some and cause for concern for others.

While consumer inflation has remained stable, home values reflected by the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, show a continued sharp decline since December 2024. In the most recent report, home prices increased by 2.3%, the lowest level since 2023.

Inventory: The number of homes for sale across the U.S. has increased by 8.0% year-over-year, according to Redfin. This rise in inventory is giving buyers more options, which is a key factor in a healthy market.

Existing Home Sales: The National Association of Realtors (NAR) reported that existing-home sales in June were at a seasonally adjusted annual rate of 3.93 million, down 2.7% from the previous month.

Time on Market: Homes are taking slightly longer to sell. The median days on market was 43 days in July, an increase from 36 days a year ago.

Home Prices: On a national level, home prices were up 1.4% year-over-year hitting a record of $422,800.

🔮 Looking Ahead

The market is currently pricing in an 83% probability of a Federal Funds Rate cut next month; however, the Fed has declined to implement any cuts thus far despite previous market sentiments. FHFA’s Bill Pulte, alongside President Trump, have been outspoken, warning inflation is easing and mortgage rate relief is overdue.

Fed Policy Outlook

The Federal Reserve has continued to hold off on any rate cuts so far in 2025. That being said, the Fed has continued to signal two cuts in 2025 and the market is currently forecasting an 83% chance of a rate cut in September 2025.