The Federal Reserve is poised to cut interest rates starting in September.

But expectations for the Fed to move have already driven mortgage rates lower, and borrowing costs could fall further ahead of the central bank taking action.

The average rate on a 30-year fixed-rate mortgage is now at its lowest level since early February, with data from Freddie Mac last week showing rates were down to 6.73% from a peak above 7.2% earlier this year. Freddie Mac will publish updated weekly data on Thursday.

And as stocks sold off and bonds continued to rally, these rates dropped even lower. According to data from Mortgage News Daily , the average rate fell to as low as 6.3% earlier this week, marking the lowest level in more than a year.

As bonds rallied amid the stock market sell-off, the yield on the 10-year Treasury note dropped to its lowest level in over a year on Monday, trading below 3.7% at session highs.

Douglas Duncan, chief economist at Fannie Mae, told Yahoo Finance in an interview that when "the 10-year [Treasury] comes down, the mortgage rate typically comes down with it. Maybe not as far, maybe sometimes further. It depends on what else is happening in the market."

Duncan explained that as bond traders have already priced in a rate cut, mortgage rates have also come down.

"One reason for the reset of the entire [mortgage] market was the expectation of the Fed cutting rates," Duncan added. "So that's as best as it can be embedded until the Fed actually takes that action. The market has incorporated that into its view."

Recent housing data has pointed to challenges with affordability as rates have stayed above 6% since early last year. Buyers still remain on the fence, with applications for a mortgage to purchase a home increasing just 1% last week despite this drop in rates and totaling 11% lower than a year ago.

Home prices hit a new high in June for the second consecutive month while the pace of existing home sales slowed, signaling that homeownership remains out of reach for many. And though prices have reached new highs, the pace of home price appreciation has slowed as inventory rises amid these affordability challenges.

Meanwhile, some homeowners are taking the opportunity to refinance existing loans as rates have eased, with applications to refinance a home loan rising 16% last week, the Mortgage Bankers Association reported .

And with market participants quickly raising expectations that the Fed will cut rates by half a percentage point in September after a disappointing jobs report heightened fears of a recession, mortgage rates could soon trend down even further.

"The 30-year mortgage rates can continue to fall ahead of actual Fed rate cuts, as they are priced off of 5-10-year bonds, not the Fed Funds Rate," LoanDepot chief investment officer and head economist Jeff DerGurahian told Yahoo Finance.

"However, any further drop will likely be limited until we get more certainty on the timing and size of any initial Fed movement."

@daniromerotv .