The average rate on a 30-year mortgage fell to 6.86%, marking the fourth consecutive weekly drop. This trend offers some relief for homebuyers amid high home prices and elevated borrowing costs.
Los Angeles, Bollywood Fever: The average rate on a 30-year mortgage eased again this week, continuing a welcome trend for prospective homebuyers who are grappling with record-high home prices. According to mortgage buyer Freddie Mac, the rate fell to 6.86% from 6.87% last week, compared to an average of 6.71% a year ago.
This marks the fourth straight weekly drop in the rate, which has largely hovered around 7% throughout this year. The elevated rates have significantly impacted home sales, causing them to decline as the additional monthly costs deter many potential buyers.
Decline in Home Sales
Sales of previously occupied U.S. homes have been falling for the past three months, with a notable drop in May. Similarly, sales of newly built single-family homes fell in April and May by 7.7% and 16.5%, respectively, from the previous year.
“The 30-year fixed-rate mortgage continues to trend down, hitting the lowest level in almost three months,” said Sam Khater, Freddie Mac’s chief economist. “By historical standards, the economy is in good shape, and we expect rates to continue to come down over the summer months, bringing additional homebuyers back into the market.”
Factors Influencing Mortgage Rates
Mortgage rates are influenced by various factors, including the bond market’s reaction to the Federal Reserve’s interest rate policies and movements in the 10-year Treasury yield, which lenders use to price home loans. The yield, which had peaked at over 4.7% in late April, has been mostly declining recently due to slower economic growth, potentially easing inflationary pressures and prompting the Federal Reserve to consider lowering its main interest rate from its highest level in over 20 years.
Earlier this month, Fed officials indicated that inflation has been moving closer to the target level of 2% and signaled an expectation to cut their benchmark interest rate once this year. This was a revision from previous projections of up to three cuts in 2024, which had initially raised expectations for further easing of mortgage rates by now.
Outlook and Impact on Homebuyers
With only one rate cut expected before the end of the year, Jiayi Xu, an economist at Realtor.com, commented, “Relief may come too little and too late for many first-time homebuyers.” Xu added, “For home shoppers and sellers, peak mortgage rates are likely behind us, but the risk of volatility remains, complicating moving decisions.”
As mortgage rates have eased in recent weeks, the monthly payments that home shoppers are agreeing to take on have also decreased. The national median monthly payment on home loan applications in May was $2,219, down 1.6% from the previous month but up 2.5% from May last year, according to the Mortgage Bankers Association (MBA).
The MBA is forecasting that mortgage rates will drop closer to 6.5% by the end of this year. However, this may not be sufficient to entice homeowners who previously bought or refinanced when rates were below 4% or even 3% to sell, as nearly 90% of homes with a mortgage have a rate at 6% or lower.
Fixed-Rate Loans
Meanwhile, mortgage rates for 15-year fixed-rate loans, which are popular among owners refinancing their home loans, ticked up slightly this week. These rates averaged 6.16% this week, up from 6.13% the week before. A year ago, the rate averaged 6.06%, according to Freddie Mac.
As the housing market continues to navigate through high prices and fluctuating rates, prospective buyers and current homeowners alike are closely watching for further developments that could impact their financial decisions.
Source: APNews
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