The average interest rate for a 30-year U.S. mortgage has dipped to its lowest point since early May, presenting a hopeful sign for potential homebuyers as they face ongoing high borrowing costs and increasing home prices. Currently, the long-term rate stands at 6.77%, down from 6.81% the previous week, according to Freddie Mac. A year prior, the rate was slightly higher at 6.86%.
Not only did the 30-year mortgage rate see a decrease, but the rates on 15-year fixed-rate mortgages, often preferred by homeowners looking to refinance, have also declined. The average rate fell to 5.89% from 5.96% last week, with last year’s rate at 6.16%, as reported by Freddie Mac.
High mortgage rates can significantly increase monthly costs for borrowers, impacting their buying power. This issue has contributed to a stagnant state in the U.S. housing market, which has been experiencing a slowdown since 2022. Last year saw the steepest decline in sales of previously owned homes in nearly three decades. This trend has persisted into this year, with many potential homebuyers deterred by high mortgage rates and steadily rising home prices, although the rate of increase has slowed.
The pressure of elevated borrowing costs is also affecting the market for new homes. In May, sales of new U.S. homes dropped by nearly 14% compared to the previous month, according to a government report.
Realtor.com’s senior economic research analyst, Hannah Jones, observed that the housing market remains in a difficult position due to high home prices and mortgage rates. Yet, rising inventory levels across much of the country might help ease upward pressure on prices, potentially benefiting buyers.
New figures indicate a possible uptick in sales in the near future. The National Association of Realtors announced that a seasonally adjusted index of pending U.S. home sales rose 1.8% in May from the previous month and climbed 1.1% compared to May last year.
Pending home sales often serve as an indicator of future completed sales, typically occurring within a month or two after contract signings.
Various factors influence mortgage rates, ranging from decisions made by the Federal Reserve concerning interest rates to bond market investors’ outlook on the economy and inflation. A crucial factor is the 10-year Treasury yield, which lenders use to guide home loan pricing. On Thursday, this yield was 4.28%, a decrease from 4.58% a few weeks prior.
This year’s average rate on a 30-year mortgage has hovered around its peak of just over 7%, which occurred in mid-January. The low point was seen in early April when it dipped to 6.62% momentarily. Mortgage rates have now decreased for four consecutive weeks, attributed to recent declines in bond yields. With this latest reduction, the average rate is at its lowest since May 8, when it stood at 6.76%.
The reduction in mortgage rates may have motivated some home buyers, as mortgage applications increased by 1.1% last week compared to the week prior, according to the Mortgage Bankers Association. Economists generally anticipate that mortgage rates will remain relatively stable over the coming months, predicting an average rate for a 30-year mortgage to stay between 6% and 7% throughout the year.