Mortgage rates declined to the lowest level in more than a year as investors anticipate the Federal Reserve will begin cutting its benchmark interest rate at next month’s meeting with inflation and the labor market cooling.

Freddie Mac said the average rate on a 30-year, fixed-rate mortgage — the most common type — fell to 6.35%, the lowest level since May of 2023. A year ago, the average rate on the 30-year loan was 7.18%.

Lower mortgage rates are welcome news for Americans looking for a home in a market with record-high asking prices. A small change in interest rates can make a significant difference in monthly mortgage payments.

“Mortgage rates fell again this week due to expectations of a Fed rate cut,” said Sam Khater, Freddie Mac’s chief economist. “Rates are expected to continue their decline, and while potential homebuyers are watching closely, a rebound in purchase activity remains elusive until we see further declines.”

Industry experts expect mortgage rates to settle around 6% as the Fed continues its efforts to keep the economy on track while bringing inflation down.

Economists and investors anticipate that the Fed will begin lowering its benchmark interest rate at next month’s meeting, which would ease borrowing costs for consumers and businesses. The Fed raised rates from near zero at a record pace and held them there over the last two years to combat inflation that surged during the post-pandemic economic recovery.

But inflation has cooled considerably, coming in under 3% in the most recent reading, and the labor market has also softened, giving the central bank confidence it can lower rates without causing prices to spiral out of control.

Mortgage rates do not directly follow the Fed’s benchmark rate but are influenced by it through investor expectations, which lenders use to guide interest rate decisions.