Mortgage rates dropped to their lowest level since early February after the Federal Reserve set the stage for a September interest rate cut.

The average rate on the 30-year fixed-rate mortgage fell to 6.73% from 6.78% a week prior, Freddie Mac reported on Thursday. A year ago, the average rate on a 30-year fixed-rate loan was 6.9%.

Separately, the average rate for the 15-year fixed mortgage was 5.99%, down from 6.07% a week prior. The rate on a 15-year loan was 6.25% a year ago.

The data's release came a day after the Fed held interest rates steady at its June policy meeting but hinted that it's closer to cutting rates as it cited "some further" progress on inflation. Fed Chair Jerome Powell told reporters a September cut "could be on the table."

The decline is a welcome decline for prospective homebuyers grappling with affordability. Home prices hit another record in May.

“Expectations of a Fed rate cut coupled with signs of cooling inflation bode well for the market, but apprehension in consumer confidence may prevent an immediate uptick as affordability challenges remain top of mind. Despite this, a recent moderation in home price growth and increases in housing inventory are a welcoming sign for potential homebuyers," Sam Khater, Freddie Mac’s chief economist, said in a release.

The easing of mortgage rates wasn't enough to get more prospective buyers off the fence. Applications for a mortgage to purchase a home dropped 2% from the prior week on a seasonally adjusted basis.

Mortgage rates have caused some stress for homeowners looking to sell, as many secured low rates during the pandemic. However, rates are lower since they peaked above 7% earlier this summer.

“We expect that mortgage rates will continue to drift lower through the remainder of the year, particularly if the Fed does launch a series of rate cuts in September,” Mike Fratantoni, chief economist for the Mortgage Bankers Association, said in a statement following the Fed’s rate decision.

Dani Romero is a reporter for Yahoo Finance. Follow her on X @daniromerotv.

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