The average rate on a 30-year mortgage has dropped to 6.87%, the lowest level since early April, according to mortgage buyer Freddie Mac. This marks the third consecutive weekly decline in rates, which have been hovering around 7% since April. A year ago, the rate averaged 6.67%. The easing of borrowing costs provides relief to potential homebuyers, as higher mortgage rates can significantly increase monthly expenses, limiting purchasing options.
Additionally, rates on 15-year fixed-rate mortgages, popular among homeowners refinancing their loans, also decreased to 6.13% from 6.17% last week. A year ago, the rate stood at 6.03%. Freddie Mac's chief economist attributed the rate decline to signs of cooling inflation and market expectations of a future Fed rate cut.
Various factors influence home loan rates, including the bond market's response to the Federal Reserve's interest rate policy and movements in the 10-year Treasury yield, which serves as a benchmark for pricing home loans. Recent economic data indicating slower growth has led to a decrease in yields, potentially prompting the Federal Reserve to lower its main interest rate from its current two-decade high.
Federal Reserve officials have expressed intentions to cut their benchmark interest rate once this year, as inflation has moved closer to their target level of 2%. However, until the Fed initiates a reduction in short-term rates, long-term mortgage rates are unlikely to see significant easing, according to economists.
The persistently high average rate on 30-year mortgages has deterred many prospective homebuyers, contributing to a lackluster spring homebuying season. Sales of previously owned U.S. homes declined in March and April, as rising borrowing costs and home prices posed challenges for buyers.
