(NewsNation) — The average interest rate for mortgages dropped to its lowest level in 15 months last week, after the Federal Reserve signaled it could start cutting rates in September.

The average contract rate on a 30-year fixed-rate mortgage dropped 27 basis points in the week of Aug. 2, to 6.55%, the Mortgage Bankers Association said Wednesday. That was the lowest rate since May 2023 and the sharpest drop in two years.

The decline gives potential homebuyers some long-hoped-for relief in what has become an increasingly unaffordable housing market in recent years, as home prices and borrowing costs both rose.

“If you can refinance your rate to be at least 1% lower than it currently is, it could be worth it,” says Dean Tsantes, a certified financial planner in Virginia. A rate reduction of 1% or 2% is usually when homeowners start to see a significant reduction in monthly payments, typically a hundred bucks or more on a $300,000 loan.

“Right now, it’s difficult to tell if this reflects simple buyer fatigue or a greater sense of disenchantment with the market, but we think it could have important implications should the trend continue,” Doug Duncan, chief economist at Fannie Mae, the government-sponsored mortgage finance company, said in a statement.

Two days after the Federal Reserve’s last policy meeting, the Labor Department’s monthly jobs report showed that the unemployment rate had jumped to 4.3% in July and hiring had slowed, raising fears a recession is imminent.

More than 4 million mortgages originated since 2022 have interest rates of 6.5% or higher, according to Intercontinental Exchange’s ICE Mortgage Monitor.

But more than six in 10 mortgages have rates below 4%, according to data from Freddie Mac, the government-sponsored mortgage giant. That suggests that for a large fraction of homeowners, mortgage rates would need to drop far more to make the cost of refinancing worthwhile, or to entice them to buy a new home and put their current one on the market.

Reuters contributed to this report.