This week, the average rate on a 30-year mortgage fell to its lowest level since early February, providing some relief for prospective homebuyers contending with record-high home prices. According to Freddie Mac, the rate decreased to 6.73% from 6.78% last week. This is a decline from the 6.9% average a year ago.
Rates on 15-year fixed-rate mortgages, commonly chosen by homeowners refinancing, also saw a reduction this week, dropping to 5.99% from 6.07% the previous week. A year prior, these rates averaged 6.25%.
After peaking at a 23-year high of 7.79% in October, the average rate on a 30-year mortgage has generally stayed around 7% this year, more than double the rate from three years ago. Elevated mortgage rates, which increase monthly costs for borrowers, have contributed to the ongoing housing slump, now extending into its third year. Sales of previously owned U.S. homes fell for the fourth consecutive month in June, and new single-family home sales reached their slowest annual pace since November.
Despite these challenges, the average rate on a 30-year mortgage has not exceeded 7% since late May. This stability reflects recent indications of cooling inflation and growing expectations for a Federal Reserve rate cut in September.
Mortgage rates are influenced by various factors, including the bond market’s reaction to Federal Reserve policy. This, in turn, affects the 10-year Treasury yield, which lenders use to price home loans. Recent expectations of a Fed rate cut and signs of slowing economic growth have led to a decrease in the 10-year Treasury yield, which fell from over 4.7% in late April to 3.98% in midday trading, the lowest level since February.
If bond yields continue to drop in anticipation of a Fed rate reduction, mortgage rates could decline further. Freddie Mac’s chief economist, Sam Khater, noted that while the prospect of a Fed rate cut and cooling inflation are positive developments, consumer confidence remains cautious due to ongoing affordability challenges. However, recent slower home price growth and increased housing inventory are promising for potential buyers.
Nevertheless, most economists predict that the average rate on a 30-year mortgage will remain above 6% for the rest of the year. This may not be sufficient to entice buyers who have been waiting for lower rates or persuade homeowners with low locked-in rates to sell. Currently, 86% of outstanding home mortgages have interest rates below 6%, and over 75% have rates of 5% or lower, according to Realtor.com.
Jiayi Xu, an economist at Realtor, commented, “While a potential rate cut in September would be a positive development, subsequent declines in mortgage rates may be less significant than anticipated, as the market has already factored in expected rate cuts, which is reflected in the recent rate drops.”
