This week saw a minor drop in the average rate for a 30-year mortgage in the United States, providing some welcome relief for homebuyers during what is typically the busiest time of the year in real estate. The rate dipped to 6.65% from 6.67% the previous week, according to information released by mortgage buyer Freddie Mac on Thursday. Last year at this time, the rate was slightly higher, averaging around 6.79%.
This week’s decline marks the first decrease after two consecutive weeks of rising rates. Since mid-January, when the rate peaked just above 7%, there has been a general downward trend, giving hope to potential homeowners who have faced challenges due to years of increasing property prices. On the other hand, the average rate for 15-year fixed-rate mortgages, which are frequently favored by those refinancing, increased this week, moving up to 5.89% from 5.83% last week. A year ago, this rate stood at 6.11%.
Several factors impact mortgage rates, including investor expectations for future inflation, global demand for U.S. Treasurys, and policy decisions by the Federal Reserve regarding interest rates. This year’s overall decrease in the average rate for a 30-year mortgage loosely follows the movements of the 10-year Treasury yield. Lenders typically look to this yield when setting prices for home loans.
As of mid-January, the 10-year Treasury yield was approaching 4.8%. However, it has largely decreased since that time, driven by growing concerns over the Trump administration’s rising tariffs on imported goods. Economists warn that these tariffs could potentially boost inflation, subsequently hindering economic growth. On Thursday, the yield was recorded at 4.37% during midday trading.
Bond investors seek higher returns amidst heightened inflation, and an increase in inflation could lead to higher 10-year Treasury note yields, potentially resulting in increased mortgage rates. Presently, the economic uncertainty is contributing to lower mortgage rates, which is proving advantageous for prospective homebuyers as the spring buying season kicks off.
According to the Mortgage Bankers Association, there’s been a consistent increase in mortgage applications for home purchases over the last five weeks, most recently rising by 1% from the prior week. These applications are 7% higher than they were a year ago. Sam Khater, Freddie Mac’s chief economist, noted that the recent stability in mortgage rates is proving beneficial for potential buyers this spring, as indicated by the rise in purchase applications.
Since 2022, when mortgage rates started climbing from pandemic-era lows, the U.S. housing market has experienced a downturn in sales. Last year saw sales of pre-owned homes fall to their lowest in nearly three decades. Recent trends, including declining mortgage rates and an increase in homes available on the national market, did boost sales in February compared to January, though they were down from the previous year.
New data points to potential sales growth in the coming months, with a 2% increase in pending home sales in February over the previous month, although there was a 3.6% decline compared to a year earlier, as reported by the National Association of Realtors on Thursday. Generally, there is a period of a month or two between the signing of a contract and the finalization of a sale, highlighting pending sales as an indicator of future completed transactions.
Lawrence Yun, chief economist for NAR, commented that despite the modest monthly increase, the number of signed contracts is still significantly below historical averages.