The average interest rate on a 30-year mortgage fell to its lowest level in more than a year this week, a welcome boost to affordability for future homeowners. home buyers and homeowners who want to refinance their mortgage to a lower interest rate.
The rate fell to 6.47% from 6.73% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.96%.
This is the second consecutive weekly decline in the average rate. It is now the lowest since mid-May last year, when it was 6.39%.
Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their mortgages, also fell this week, bringing the average rate down to 5.63% from 5.99% last week. A year ago, the average was 6.34%, according to Freddie Mac.
“The decline in mortgage rates is increasing the purchasing power of potential homebuyers and should encourage them to move,” said Sam Khater, chief economist at Freddie Mac. “In addition, this decline in interest rates is already providing some existing homeowners with the opportunity to refinance.”
After rising to a 23-year high of 7.79% in October, the average rate on a 30-year mortgage has largely hovered around 7% this year, more than double what it was three years ago.
High mortgage rates, which can cost borrowers hundreds of dollars a month in extra costs, have scared off homebuyers and sent the nation into a three-year housing recession.
Sales of previously occupied American homes fell for the fourth consecutive month in June. In addition, sales of new single-family homes fell last month to their slowest annual pace since November.
Rates have largely fallen in recent weeks, signs of declining inflation And a cooling labor market have raised expectations that the Federal Reserve will cut its key interest rate next month for the first time in four years.
Mortgage rates are affected by several factors, including how the bond market reacts to the central bank’s interest rate policy decisions. That can affect the price of the 10-year Treasury yield, which lenders use as a guide to pricing mortgages.
This week’s decline in mortgage rates follows a pullback in the 10-year U.S. Treasury yield, which briefly fell to around 3.7% last week as investors worried about worse-than-expected labor market data, boosting demand for bonds.
The yield, which was 4.7% at the end of April, was 4% on the bond market on Thursday afternoon.
If Treasury yields continue to fall in anticipation of the Fed’s rate cut this fall, that could lead to further declines in mortgage rates. However, most economists expect the average rate on a 30-year mortgage to remain above 6% this year.
However, the recent decline in mortgage rates has already led to an increase in the number of homeowners looking to refinance. Applications for mortgage refinance loans have increased last week to the highest level in two years.
House prices may have to fall further before many potential homebuyers, struggling with record-high home prices and a chronic shortage of housing on the market, can afford to buy a home.
“Buyers are waiting patiently for interest rates to drop further and more supply to come onto the market,” said Lisa Sturtevant, chief economist at Bright MLS.
