In a significant development for prospective homebuyers, the average rate on a 30-year U.S. mortgage has dropped to its lowest level in nearly 10 months. This decrease provides much-needed relief and enhances purchasing power, potentially revitalizing a stagnant housing market. According to mortgage buyer Freddie Mac, the long-term rate fell from 6.63% last week to 6.58%. In contrast, one year ago, the rate averaged 6.49%, highlighting the fluctuations in borrowing costs.
The trend of decreasing mortgage rates is not limited to 30-year loans. Borrowing costs for 15-year fixed-rate mortgages, which are particularly popular among homeowners looking to refinance, have also declined. The average rate for these loans fell from 5.75% last week to 5.71%. For context, this time last year, the average rate stood at 5.66%, according to Freddie Mac's latest data.
Since early 2022, elevated mortgage rates have contributed to a prolonged slump in the U.S. housing market. The surge in rates began when they started to climb from the historic lows experienced during the pandemic. Consequently, home sales plummeted last year, reaching their lowest levels in nearly 30 years. The current decline in rates marks the fourth consecutive week of reductions, with the current average being the lowest since October 24, when it was recorded at 6.54%.
Several factors affect mortgage rates, including the Federal Reserve's interest rate policy, investor expectations for the economy, and inflation. A crucial indicator is the 10-year Treasury yield, which lenders use to price home loans. As of midday Thursday, the yield was at 4.29%, a slight increase from 4.24% late the previous day. Recent weeks have seen a decline in yields following weaker-than-expected U.S. job market data, which has led to speculation regarding a potential Fed rate cut next month.
While a Federal Reserve rate cut could stimulate the job market and the overall economy, it may also heighten inflation risks. Increased inflation could lead to higher bond yields, consequently driving mortgage rates upward, even in the event of a Fed rate cut. Economists generally anticipate that the average rate on a 30-year mortgage will remain above 6% throughout the year. Recent forecasts from Realtor.com and Fannie Mae suggest that rates may ease to approximately 6.4% by the end of this year.
Joel Berner, a senior economist at Realtor.com, remarked, “Homebuyers who have been relegated to the sidelines by high financing costs got some encouragement in the past two weeks, but it remains to be seen if it’s enough to get more of them back in the game.” The latest data from the Mortgage Bankers Association indicates that mortgage applications jumped by 10.9% last week compared to the previous week, largely driven by homeowners seeking to refinance their existing loans. In fact, refinance applications constituted nearly 47% of all applications, reflecting a 23% increase compared to a week earlier—the strongest week for refinancing since April.
Additionally, applications for adjustable-rate mortgages (ARMs) surged by 25%, reaching their highest level since 2022, according to the MBA. This trend underscores the evolving dynamics in the mortgage market as rates fluctuate and homebuyers respond to changing conditions.
