August Mortgage Outlook: Rates May Slumber, but Buyers Dream of a Big Drop

Mortgage rates will probably stay about the same in August. If they change, they're more likely to go down than up.

Even if mortgage rates fall a little bit, it won't be enough to wake up the sleepy housing market. When would-be home buyers dream, visions of mortgage rates below 6.5% dance in their heads. But rates won't fall that low in August.

On the other hand, we shouldn't yawn at even a slight drop in mortgage rates. Any progress toward lower rates is worth celebrating.

A precarious forecast

This prediction is based mostly on investors' belief, as of today, that the Federal Reserve is more likely than not to keep short-term interest rates unchanged in September. The Fed left the federal funds rate alone at its July 30 meeting. Immediately afterward, traders in the federal funds futures market were pricing in less than a 45% chance of a rate cut at the Sept. 17 Fed meeting.

In August, if traders continue to believe that the Fed will leave rates alone in mid-September, mortgage rates are likely to stabilize. But the futures market can change direction as quick as a flock of starlings. If inflation cools unexpectedly or the unemployment rate goes up, investors might change their minds and come to believe that the Fed will cut rates.

Even if investors start to think that a September Fed cut is likely, it doesn't necessarily mean that 30-year mortgage rates will fall significantly. That's mostly because mortgage rates are more sensitive to long-term inflation expectations, and those expectations could turn sometime in August.

Now you know why to view this forecast skeptically. Other reasons: We can only predict based on what we know at a given point in time. Important inflation data and July’s employment report are being released in short order, and either statement could affect the direction of mortgage rates in August. Possibly abruptly.

What could change the rate outlook

Like a piñata at a birthday party, mortgage rates are subject to wild swings. That's especially the case this summer and fall.

Financial markets are waiting to find out how trade policy will affect the economy: Will the inflation rate jump after higher tariffs kick in? That could push mortgage rates higher. Will rising prices force the economy to slow down as consumers buy less? That could pull mortgage rates lower.

Lately, the hits have come from a new direction: President Trump's messages about the Federal Reserve's monetary policy and the Fed's chair, Jerome Powell. Trump has publicly urged the Fed to cut short-term interest rates. He has threatened to fire Powell and then withdrawn the threat. Turmoil could follow any actions that investors dislike or don't expect.

Why rates could stay about the same

But turmoil doesn't mean that big changes in rates are inevitable. Lisa Sturtevant, chief economist for Bright MLS, a database of properties for sale in mid-Atlantic states, said in an email that "amidst all of this uncertainty, my best guess is that mortgage rates are going to remain pretty much where they are in August."

She traces uncertainty to "tariffs, government spending and the Trump administration’s scolding of the Fed chair, which could keep bond yields high and therefore keep mortgage rates elevated."

What other forecasters predict

Two organizations — mortgage securitizer Fannie Mae and the Mortgage Bankers Association — offer quarterly rate forecasts. Both organizations predict that mortgage rates will drop over the next year, but they disagree about how rapidly it will happen.

Fannie Mae expects rates to go down this quarter (July through September), and to fall below 6.5% in the final three months of this year. The MBA expects rates to stay about the same or even rise slightly this quarter, and then to drift downward slowly. The trade association forecasts that rates will average 6.7% in the final three months of this year.

Fannie Mae predicts that rates will fall further through the first half of 2026, while the MBA expects rates to remain above 6.5% until this time next year.

What I predicted for July, and what happened

At the end of June, I predicted that rates were "likely to edge a little lower in July, continuing the gradual decline we saw in June." That was correct.