The average rate on a 30-year mortgage fell this week to its lowest level in more than a year, a welcome boon for potential homebuyers and homeowners looking to refinance their mortgage at a lower rate.
The interest rate fell to 6.47% from 6.73% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.96%.
This is the second consecutive weekly drop in the average rate, the lowest since mid-May last year, when it was 6.39%.
Borrowing costs on 15-year fixed-rate mortgages, popular among homeowners looking to refinance their home loans, also fell this week, bringing the average rate to 5.63% from 5.99% last week. A year ago, it averaged 6.34%, Freddie Mac said.
“Lower mortgage rates are increasing the purchasing power of potential homebuyers and should begin to encourage them to take the plunge,” said Sam Khater, Freddie Mac’s chief economist. “Additionally, lower rates are already providing some current homeowners with an opportunity to refinance their homes.”
After hitting a peak of 7.79% in October, the highest average rate in 23 years, the average rate on a 30-year mortgage has mostly hovered around 7% this year, more than double what it was just three years ago.
High mortgage rates, which can add hundreds of dollars a month to borrowers’ costs, have discouraged home buyers, extending the nation’s housing crisis into its third year.
Sales of occupied homes in the United States fell in June for the fourth consecutive month. Sales of new single-family homes fell last month, reaching their slowest annual pace since November.
Rates have mostly fallen in recent weeks as signs of slowing inflation and a slowing labor market have raised hopes that the Federal Reserve will cut its benchmark interest rate next month for the first time in four years.
Mortgage rates are influenced by several factors, including how the bond market reacts to central bank interest rate decisions. That can change the trajectory of the 10-year Treasury yield, which lenders use as a guide to price home loans.
The drop in mortgage rates this week follows a decline in the 10-year Treasury yield, which briefly slipped last week to around 3.7% after worse-than-expected labor market data rattled investors, sending demand for bonds soaring.
The yield, which topped 4.7% in late April, stood at 4% in afternoon trading on the bond market on Thursday.
If bond yields continue to fall in anticipation of the Fed’s rate cut this fall, that could lead to further declines in mortgage rates, even though most economists expect the average rate on a 30-year mortgage to remain above 6% this year.
Still, the recent drop in mortgage rates has already prompted a surge in the number of homeowners looking to refinance their loans. Mortgage refinancing applications jumped last week to their highest level in two years.
Rates may have to fall further before many potential buyers, faced with record-high home prices and a chronic shortage of properties on the market, can afford to buy a home.
“Buyers are eagerly awaiting rates to drop further and more inventory to come onto the market,” said Lisa Sturtevant, chief economist at Bright MLS.
