The average interest rate for a 30-year mortgage in the United States experienced a slight reduction this week, dipping below 7% for the first time after climbing for five consecutive weeks. The rate decreased to 6.96%, down from the previous week’s 7.04%, as reported by Freddie Mac. In comparison, the average rate a year ago was 6.69%.
Additionally, the costs associated with 15-year fixed-rate mortgages, often chosen by homeowners looking to refinance, also saw a decrease. The average rate for these loans fell to 6.16%, down from 6.27% last week, although it was higher than last year’s average of 5.96%.
Sam Khater, the chief economist at Freddie Mac, commented that while challenges related to affordability continue, the recent drop in rates is encouraging for prospective homebuyers, evidenced by a rise in mortgage applications for purchases. Despite this week’s increase in applications, general activity has been muted as the average 30-year mortgage rate remained elevated around 7%, a trend noted by the Mortgage Bankers Association.
The reduction in borrowing costs correlates with a decrease in bond yields, particularly the U.S. 10-year Treasury yield, which serves as a benchmark for mortgage pricing. After peaking at 4.78% earlier last week due to positive economic reports and concerns over inflation linked to proposed tariffs by the Trump administration, the yield settled at 4.64% during midday trading on Thursday.
Mortgage rates can fluctuate based on numerous factors, particularly the bond market’s reaction to the Federal Reserve’s interest rate policies. Rates have generally been on the rise since the Federal Reserve indicated a modest outlook for interest rate cuts moving forward, suggesting only two reductions for the year, a decline from an earlier projection of four cuts. The central bank’s policymakers are scheduled for a meeting next week, which may offer further insights.
High mortgage rates have presented significant challenges for homebuyers, contributing to a prolonged downturn in home sales that began in 2022. Although sales of previously owned homes showed an increase for the second consecutive month in November, the overall market is on track for its weakest sales year since 1995. Comprehensive data on home sales for the year will be released on Friday.
Many potential buyers have found themselves priced out of the housing market due to the combined effects of rising mortgage rates and home prices. The median monthly housing payment in the U.S. reached $2,686 in the four-week period ending on January 19, marking the highest level observed in nearly seven months, according to Redfin’s analysis.
Predicting future mortgage rates poses challenges due to the diverse range of influencing factors, including governmental fiscal policies, economic performance, and global tensions among others. Several economic forecasts suggest that 30-year mortgage rates will likely remain above 6% throughout this year, with some projections placing the upper limit close to 6.8%.
Bob Broeksmit, CEO of the Mortgage Bankers Association, expressed that ongoing uncertainty regarding economic and monetary strategies, coupled with concerns about inflation, will likely keep mortgage rates elevated for the foreseeable future.
