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Due to concerns of a recession triggered by lackluster employment data, the market has significantly increased expectations for a Federal Reserve rate cut, with a 50 basis point cut in September now fully priced in. Last week, the most popular 30-year mortgage rate in the United States plummeted to its lowest level in 15 months. Boosted by this, mortgage applications have surged significantly. The Fed's easing expectations, while alleviating the pressure on homebuyers, are also expected to break the current sluggish market environment and consumer sentiment, thereby boosting the industry's prospects.

Mortgage rates have plummeted significantly. The Mortgage Bankers Association (MBA) stated on Wednesday that the average contract rate for a 30-year mortgage fell by 27 basis points to 6.55%. This is the lowest level since May 2023 and the largest single-week drop in two years. Concurrently, the 15-year loan rate dropped from 6.27% the previous week to 6.03%, and the rate for adjustable-rate mortgages fell from 6.22% to 5.91%.

Following the Federal Reserve's interest rate meeting, the U.S. Department of Labor's monthly employment report indicated that the unemployment rate jumped to 4.3% in July, sparking worries about an imminent or ongoing recession. Influenced by this, the yields on 2-year and 10-year U.S. Treasury bonds fell by over 40 basis points in a single week, dragging down the closely related mortgage rates and offering a glimmer of hope for millions of American families looking for new homes.

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In response to post-pandemic inflationary pressures, the Federal Reserve's aggressive rate hikes in 2022 and 2023 pushed the federal funds rate to its highest level since the 1980s, and since the second half of last year, the policy rate has been maintained within a range of 5.25%-5.50%.

With the rise in housing prices and borrowing costs, the U.S. housing market has become increasingly unaffordable. The latest data shows that in June, new home sales in the U.S. housing market were 51,000 units, the lowest since November 2023, and existing home sales have declined year-on-year for 34 consecutive months. In terms of housing prices, the median price of new homes continued to rise month-on-month, while the median price of existing homes set a new historical high for two consecutive months.

Fannie Mae's July Housing Sentiment Index also indicates this situation. Fannie Mae stated that only 17% of respondents said it is a good time to buy a house, down from 19% in June. Additionally, 35% of people said they would continue to rent rather than buy a house, the highest proportion since 2011.

Doug Duncan, Chief Economist at Fannie Mae, said in a statement: "At present, it is difficult to say whether this is simply buyer fatigue or a greater sense of disappointment in the market, but we believe that if this trend continues, it could have significant implications."

The market is waiting for a turning point. Last week, the Federal Reserve kept the interest rate unchanged for the eighth consecutive time. The decision statement removed the commonly used phrase "highly attentive to inflation risks," replacing it with an acknowledgment that policymakers are now "attentive to the risks surrounding its dual mandate." Federal Reserve Chairman Powell stated in the subsequent press conference that a rate cut in September is on the horizon, as long as economic data can make further progress.The easing of the job market has bolstered this hope, and several Federal Reserve officials have hinted at this in their speeches. Mary Daly, President of the Federal Reserve Bank of San Francisco, stated this week that once the situation becomes clear, the Fed will be ready to take necessary actions for the economy. She believes that policy adjustments will be necessary in the coming quarters.

Federal funds rate futures indicate that the market has priced in more than 100 basis points of rate cuts by the Fed this year, and the Fed may need to cut rates consecutively to address potential risks facing the economy.

Real estate professionals in the United States believe that recent economic uncertainties, high housing prices, and high interest rates continue to suppress sales. As buyers wait and see, the "lock-in effect" dampens the supply.

With the Fed's resumption of rate cuts on the horizon, it provides some buyers who entered at higher interest rates with the option to refinance and reduce their payments. In October last year, the 30-year mortgage rate once reached 7.9%. The Mortgage Bankers Association (MBA) reported that the refinance index jumped nearly 16% last week, reaching a two-year high of 661.4. Mortgage applications for home purchases rose by 0.8%, marking the first increase in a month. The overall index of mortgage applications, including refinancing and home purchases, increased by 6.9%, reaching the highest level so far this year.

According to ICE Mortgage Monitor by Intercontinental Exchange, since 2022, more than 4 million mortgage loans have interest rates of 6.5% or higher. Freddie Mac's data shows that over 60% of mortgage rates in the United States are below 4%. This indicates that for a large portion of homeowners, mortgage rates still need to drop significantly to make refinancing costs valuable, attracting them to buy new homes and bring existing homes to the market, thereby stimulating liquidity.