The interest rate on the most common type of U.S. home mortgage dropped last week to 6.83%, its lowest since June, as the Federal Reserve signaled it is done raising borrowing costs and will turn to cutting them next year.

The average contract rate on a 30-year fixed-rate mortgage fell 24 basis points in the week ended Dec. 15, the Mortgage Bankers Association said on Wednesday.

The rate has not been below 7% since July 28, and as recently as late October had risen to nearly 8%, a two-decade high.

The Fed held interest rates steady last week and Fed Chair Jerome Powell signaled that, given progress on inflation, the central bank was likely finished with the rate-hike campaign it began in March 2022 and could soon start debating rate cuts.

The remarks set off a sharp decline in the yield on the 10-year Treasury note, used as a benchmark to set home loan costs.

But the drop in the mortgage rate did not immediately translate to a run on homebuying or refinancing; indeed, refinance and purchase applications showed small declines last week, apart from an 18% surge in VA refinance applications, according to MBA chief economist Mike Fratantoni.

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