The average 30-year mortgage rate fell for the second week in a row and remains at its lowest level in more than a year, good news for potential buyers facing home prices near record highs.
The interest rate fell to 6.35% from 6.46% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 7.18%.
The last time the average rate was this low was May 11, 2023.
Borrowing costs on 15-year fixed-rate mortgages, popular among homeowners looking to refinance their home loans at a lower rate, also fell this week. The average rate fell to 5.51% from 5.62% last week. A year ago, it averaged 6.55%, Freddie Mac said.
“Mortgage rates fell further this week on expectations of a Fed rate cut,” said Sam Khater, Freddie Mac’s chief economist. “Rates are likely to continue their decline, and while potential homebuyers are watching closely, a rebound in buying activity remains difficult to predict until we see further declines.”
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 yield, which hit 4.7% in late April, has fallen sharply since then, on expectations that the Fed could soon cut its main interest rate. It was around 3.9% in bond trading Thursday afternoon.
Wall Street traders see a high likelihood that the Fed will cut its key interest rate by at least 1 percentage point by the end of the year, according to data from CME Group. That suggests the bond market has already priced in a series of Fed rate cuts this year, which could limit further easing in mortgage rates.
“So we shouldn’t expect the downward movement in mortgage rates to accelerate unless worse-than-expected economic indicators suggest the market is headed for something other than a soft landing,” said Ralph McLaughlin, senior economist at Realtor.com.
Most economists expect the average 30-year mortgage rate to remain above 6% this year. The latest forecast from Realtor.com predicts the average rate will not fall below 6.3% by the end of the year.
After hitting a 23-year high of 7.79% in October, the average rate on a 30-year mortgage has hovered around 7% for most of this year. That’s 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 kept many potential home buyers on the sidelines, extending the nation’s housing crisis into its third year.
Sales of occupied homes in the United States are slowing compared to last year’s pace, although they ended a four-month decline in July as home buyers took advantage of more attractive mortgage rates.
However, new data on U.S. home contract signings, an indicator of future home sales, indicate a potential further slowdown in home sales.
The National Association of Realtors’ pending home sales index fell 5.5% in July from the previous month, the trade association said Thursday. Pending transactions were down 8.5% from the same month last year.
There is typically a lag of a month or two between the signing of a contract and the finalization of the sale of the home. This suggests a possible decline in sales of occupied homes in the United States in August or September.
