LOS ANGELES — Recently, mortgage rates have shown a trend of decline, a positive sign for potential homebuyers as the spring season for purchasing homes kicks off.
However, the factors leading to these reductions in rates—indications of a slowing U.S. economy and uncertainty stemming from the Trump administration’s tariff policies—also bring ambiguity to the future of mortgage rates.
“We don’t foresee major relief from elevated mortgage rates soon due to persistent inflation, further aggravated by the Trump administration’s proposed tariffs,” explained Joel Berner, senior economist at Realtor.com.
According to Freddie Mac, the average rate for a 30-year mortgage in the United States has been decreasing for six consecutive weeks, going down from 7.04% in mid-January to 6.76% last week. This time last year, it was averaging around 6.94%.
The current rate is the lowest since December 19, when it reached 6.72%. Although it dipped to a two-year low in September, it is still much higher than the record low of 2.65% observed over four years ago.
Several factors impact mortgage rates, including investors’ expectations for inflation, global demand for U.S. Treasury securities, and decisions regarding the Federal Reserve’s interest rate policy.
The reduction in mortgage rates aligns with the movement seen in the 10-year Treasury yield, which lenders use to guide home loan pricing. Since mid-January, when it stood at 4.79%, the yield has primarily been on a downward trend, driven by concerns about economic growth and the repercussions from tariffs introduced by the Trump administration on key trading partners.
While bond market fluctuations have seemingly benefited homebuyers with lower mortgage rates, the future path for these rates is still unpredictable.
Tariffs can boost inflation, potentially causing higher yields on the 10-year Treasury note and leading to increased mortgage rates, as bond investors expect greater returns when inflation remains high.
Furthermore, the Federal Reserve has adopted a more cautious stance, assessing where inflation trends lead and contemplating the Trump administration’s policy directions.
Despite this year’s consistent drop in mortgage rates, it has yet to cause a surge in home sales. In January, sales of previously owned U.S. homes dropped due to rising mortgage rates and home prices, deterring many potential buyers even with a greater availability of properties on the market.
Indicators for future sales, such as pending home sales, suggest that the decline in sales may continue, having hit a historic low in January.
Nonetheless, the Mortgage Bankers Association reported a noteworthy 20.4% increase in mortgage applications from the previous week, with a significant 37% jump in refinancing applications.
Such an upswing in mortgage applications is typical for this season, but the substantial rise indicates mortgage rates have decreased enough to entice some buyers into action.
The current reduction in rates is timely for those looking to buy homes. Compared to a year ago, the housing inventory has grown significantly, and home prices are seeing a national deceleration, with declines in many metropolitan areas including Austin, Dallas, and Tampa, Florida.
However, alluring mortgage rates alone might not be sufficient to encourage buyers if the overall economic and job market conditions deteriorate.
“Inflation is still an issue, yet now the economy shows signs of softening,” remarked Daryl Fairweather, chief economist at Redfin. “This scenario makes potential buyers hesitantly enter the housing market.”
Mortgage Rates Drop, Homes Remain Costly
