The average rate on a 30-year mortgage in the U.S. slipped to its lowest level in two years this week, boosting home shoppers' purchasing power as they navigate a housing market with prices near all-time highs.

The rate dipped to 6.08% from to 6.09% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 7.31%.

The last time the average rate was lower was on Sept. 15, 2022, when it was 6.02%.

Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners seeking to refinance their home loan to a lower rate, increased slightly this week. The average rate rose to 5.16% from 5.15% last week. A year ago, it averaged 6.72%, Freddie Mac said.

Mortgage rates are influenced by several factors, including how the bond market reacts to the Federal Reserve's interest rate policy decisions. That can move the trajectory of the 10-year Treasury yield, which lenders use as a guide to pricing home loans.

The average rate on a 30-year mortgage is down from 7.22% in May, its peak so far this year. Rates have been mostly declining since July in anticipation of last week's move by the Fed to cut its main interest rate for the first time in more than four years.

Fed officials also signaled they expect further cuts this year and in 2025 and 2026. The rate cuts should, over time, lead to lower borrowing costs on mortgages.

The average rate on a 30-year mortgage rose from below 3% in September 2021 to a 23-year high of 7.8% last October. That coincided with the Fed increasing its benchmark interest rate to fight inflation.

When mortgage rates rise they can can add hundreds of dollars a month in costs for borrowers. The housing market has been in a sales slump going back to 2022 as elevated mortgage rates put off many would-be homebuyers. Sales of previously occupied U.S. homes fell in August even as mortgage rates began easing.

Still, as rates have looked more attractive in recent weeks, more homeowners have applied for home loans.

Mortgage applications jumped 11% last week, according to the Mortgage Bankers Association. The strong gain was due partly to a 20% increase in applications by homeowners seeking to refinance their existing loan to a lower rate.

"Given the downward trajectory of rates, refinance activity continues to pick up, creating opportunities for many homeowners to trim their monthly mortgage payment.," said Sam Khater, Freddie Mac's chief economist. "Meanwhile, many looking to purchase a home are playing the waiting game to see if rates decrease further as additional economic data is released over the next several weeks."

While lower rates give home shoppers more purchasing power, a mortgage around 6% is still not low enough for many Americans struggling to afford a home. That's mostly because home prices have soared 49% over the past five years, roughly double the growth in wages. They remain near record highs, propped up by a shortage of homes in many markets.

Mortgage rates would have to drop back to near rock-bottom lows from three years ago, or home prices would have to fall sharply for many buyers to afford a home. Neither scenario is likely to happen any time soon.

Economists generally expect mortgage rates to remain near their current levels, at least this year. Fannie Mae projects the rate on a 30-year mortgage will average 6.2% in the October-December quarter and decline to an average of 5.7% in the same quarter next year. It averaged 7.3% in the same period in 2023.