The average rate for a 30-year mortgage in the United States has dipped for the third consecutive week, providing a bit of relief for homebuyers entering the market ahead of the bustling spring purchasing season.
According to Freddie Mac, the average mortgage rate has decreased from 6.95% last week to 6.89%. In comparison, the same rate was at 6.64% a year earlier.
Additionally, borrowing costs for 15-year fixed-rate mortgages, commonly sought by homeowners looking to refinance, have also decreased this week. The average rate for these loans dropped from 6.12% to 6.05%. In the previous year, it stood at 5.9%, as noted by Freddie Mac.
Mortgage rates are affected by various factors, including the response of the bond market to decisions made by the Federal Reserve regarding interest rates. Last September, the average rate on a 30-year mortgage hit a two-year low at just above 6%, though it has increased for most of the time since then, mirroring a significant rise in the yield of 10-year Treasury notes that lenders utilize for setting mortgage prices.
The yield, which was recorded at 3.62% in mid-September, surged to 4.79% three weeks ago due to concerns that inflation might persistently exceed the Federal Reserve’s target of 2%. Strong performance in the U.S. economy, coupled with apprehensions regarding potential policies from President Donald Trump, has also contributed to the rise in bond yields.
On Thursday during midday trading, the yield on the 10-year Treasury was at approximately 4.43%.
The elevated mortgage rates could lead to increased monthly costs for borrowers, which has discouraged some from pursuing home purchases, contributing to an ongoing slump in national home sales that has been apparent since 2022.
While there was a rise in sales of existing homes in the U.S. for the third month in a row in December, 2024 was marked as the worst year for home sales in nearly three decades, surpassing the already dismal figures recorded in 2023.
Recent data regarding pending home sales suggests that further declines may be imminent. The National Association of Realtors reported a 5.5% drop in its pending home sales index for December compared to the previous month, breaking a streak of four months of increases.
It’s important to note that there is typically a lag of a month or two between the signing of a contract and the finalization of a home sale, making pending home sales a strong predictor of future completed transactions.
For those anticipating a significant decline in mortgage rates, economists offer a less optimistic outlook.
Most forecasts project that the average rate on a 30-year mortgage will remain above 6% throughout this year, with some analysts suggesting the upper range could reach as high as 6.8%.
The Federal Reserve recently decided to keep its benchmark interest rate steady after making three consecutive cuts to close out 2024. This reflects a more cautious stance as the Fed seeks to better understand the direction of inflation and the policies the Trump administration may implement.
