Mortgage rates fell to the lowest level in two years a day after the Federal Reserve cut its benchmark interest rate.

The 30-year fixed-rate mortgage averaged 6.09% as of Sept. 19, according to data released by Freddie Mac on Thursday.

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It’s down 11 basis points from the previous week. One basis point is equal to one hundredth of a percentage point.

A year ago, the 30-year rate was averaging 7.19%.

The average rate on the 15-year mortgage was 5.15%, down from 5.27% last week. The 15-year rate was at 6.54% a year ago.

Freddie Mac’s weekly report on mortgage rates is based on thousands of applications received from lenders across the country that are submitted to Freddie Mac when a borrower applies for a mortgage.

Separate data by Mortgage News Daily said that the 30-year fixed-rate mortgage was averaging 6.15% as of Thursday morning. The Mortgage Bankers Association’s survey said that the 30-year was at 6.15% as of Sept. 6.

The big picture: Mortgage rates are 110 basis points lower than a year ago and are expected to go even lower, which could stimulate more activity in the housing market.

Homeowners who bought at higher rates are already jumping in to refinance their outstanding mortgage balances, as seen in recent data.

But buyers have largely been holding back. Though a decline in mortgage rates helps improve housing affordability, home buyers must still contend with high prices.

In August, home prices set a new record high for that month, and existing-home sales dropped to the lowest level since October 2023.

What Freddie Mac said: “While mortgage rates do not directly follow moves by the Federal Reserve, this first cut in over four years will have an impact on the housing market,” said Sam Khater, chief economist at Freddie Mac.

“Declining mortgage rates over the last several weeks indicate this cut was mostly baked in, but we expect rates to fall further, sparking more housing activity,” he added.

What are they saying? For buyers, a drop in rates increases purchasing power by nearly $12,000 from a year ago.

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A buyer looking at a home at the median listing price of $430,000 this August, with a rate of 6.09% and a 20% down payment, would need an annual income of roughly $107,900, according to calculations provided to MarketWatch by Hannah Jones, a senior economic research analyst at Realtor.com.

The buyer’s monthly payment would be roughly $2,700. The analysis also assumes they are paying property taxes and homeowners insurance and are keeping housing costs within 30% of their gross income.

A year ago, as rates were averaging 7.19%, that same buyer would have had a payment of $3,000 a month for a $436,000 home and would have needed an annual income of around $119,500.

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

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