Mortgage rates fell sharply this week, marking the biggest one-week decline in the past year, according to data released Thursday by mortgage buyer Freddie Mac.

In its latest Primary Mortgage Market Survey, Freddie Mac reported that the average rate on the benchmark 30-year fixed mortgage dropped to 6.35%, down from 6.5% the previous week. A year ago, the average rate stood at 6.2%.

“Mortgage rates are headed in the right direction and homebuyers have noticed, as purchase applications reached the highest year-over-year growth rate in more than four years,” said Sam Khater, Freddie Mac’s chief economist.

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The 15-year fixed mortgage rate also moved lower, averaging 5.5% compared to 5.6% the week prior.

At this time last year, the average rate on a 15-year loan was 5.27%.

The drop in borrowing costs coincided with a rise in mortgage activity.

The Mortgage Bankers Association (MBA) reported that total applications increased 9.2% last week.

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The MBA’s market index rose to 297.7, the highest level in more than three years.

Refinancing accounted for much of the increase. Applications to refinance a home loan jumped 12.2% to their highest level in nearly a year, making up nearly half of all applications filed during the week.

Applications to purchase a home also climbed 6.6%, reaching the strongest level in about two months.

The housing sector has struggled for more than a year under the weight of elevated interest rates, high home prices, and a limited supply of properties on the market.

However, recent trends point toward a potential shift.

The inventory of existing homes has been rising modestly, year-over-year price gains are showing signs of cooling, and borrowing costs appear to be easing.

Market watchers are also anticipating a change in monetary policy.

The Federal Reserve has kept its benchmark interest rate steady at 4.25% to 4.50% since December, after a series of rate hikes aimed at slowing inflation.

Policymakers are widely expected to consider a rate cut in the coming week amid signals of cooling price pressures and broader concerns about economic growth.

The Fed’s stance has been influenced in part by the economic effects of President Donald Trump’s tariffs.

While intended to bolster domestic manufacturing and protect U.S. industries, the tariffs prompted concern that higher import costs could drive inflation upward.

Central bank officials have cited this risk as one reason for maintaining caution.

With mortgage rates easing and demand showing renewed strength, economists will be watching closely to see whether the recent momentum signals the beginning of a broader housing recovery.

Both Freddie Mac and the MBA emphasized that affordability remains a major challenge for many households, but the latest data suggest that lower rates are starting to draw buyers and homeowners back into the market.

The coming weeks are expected to be pivotal as policymakers weigh the timing of any interest rate cuts and as buyers decide whether the current dip in mortgage rates provides enough incentive to re-enter the housing market.

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