Average rate on a 30-year mortgage eases to 6.35%, its lowest level in more than a year
The average interest rate on a 30-year mortgage has fallen for the second week in a row and is still at its lowest level in more than a year. That’s good news for potential homebuyers who are facing near-record home prices.
The 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 on May 11, 2023.
Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners looking to refinance to a lower rate, also fell this week. The average rate fell to 5.51% from 5.62% last week. A year ago, the average was 6.55%, according to Freddie Mac.
“Mortgage rates fell again this week on expectations of a Fed rate cut,” said Sam Khater, chief economist at Freddie Mac. “Interest rates are expected to continue falling, and while potential homebuyers are watching closely, a rebound in purchasing activity remains elusive until we see further declines.”
Signs of declining inflation And a cooling labor market have raised expectations the Federal Reserve will cut its key interest rate next month for the first time in four years.
Mortgage rates are affected by several factors, including how the bond market reacts to the central bank’s interest rate policy decisions. That can affect the price of the 10-year Treasury yield, which lenders use as a guide to pricing mortgages.
The yield, which hit 4.7% in late April, has since fallen sharply on expectations that the Fed’s next move would be to cut its key rate. It was around 3.9% in bond markets Thursday afternoon.
Wall Street traders expect the Fed to 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.
“We should therefore not expect the decline in mortgage rates to accelerate unless worse-than-expected economic indicators indicate the market is headed for something other than a soft landing,” said Ralph McLaughlin, chief economist at Realtor.com.
Most economists expect the average rate on a 30-year mortgage to remain above 6% this year. The latest forecast from Realtor.com predicts that the average rate will be no lower than 6.3% by the end of the year.
After rising to 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, more than double what it was three years ago.
Rising mortgage rates, which can cost borrowers hundreds of dollars a month in extra costs, have kept many potential homebuyers on the sidelines, sending the country into a three-year housing recession.
Sales of previously occupied U.S. homes are progressing below last year’s pace, although they ended a four-month decline in July because home buyers took advantage of the more attractive mortgage rates.
Still, new data on the number of signed contracts for U.S. homes, which are a harbinger of future home sales, suggests that home sales may slow further.
The National Association of Realtors’ pending home sales index fell 5.5% in July from the previous month, the industry group said Thursday. Pending transactions fell 8.5% from the same month last year.
There is usually a lag of a month or two between the time a contract is signed and the time the sale of the home is finalized, suggesting a possible drop in sales of previously occupied U.S. homes in August or September.