After largely increasing in recent weeks, the average 30-year mortgage rate in the US decreased this week but is still close to 7%.
Freddie Mac, a mortgage buyer, reported on Wednesday that the rate had dropped from 6.84% to 6.81% last week. The rate is still lower than it was a year ago, when it averaged 7.22%.
This week saw an increase in the cost of borrowing for 15-year fixed-rate mortgages, which are common among homeowners looking to refinance their home loan to a lower rate. Last week, the average rate increased from 6.02% to 6.1%. According to Freddie Mac, it averaged 6.56% a year ago.
The yield on U.S. 10-year Treasury bonds, which lenders use as a benchmark to price house loans, is one of numerous factors that affect mortgage rates. This week, the yield has loosened after largely remaining at 4.4% last week and falling below 3.70% in September. At noon on Wednesday, it was at 4.23%.
Many prospective homeowners have been unable to afford homeownership due to high mortgage rates and growing housing prices. Home sales in the United States are expected to have their worst year since 1995.
According to Freddie Mac’s senior economist, Sam Khater, the 30-year fixed-rate mortgage saw a little decline this week. The low demand is partly a result of prospective purchasers waiting on the sidelines. Inventory has only slightly improved and is still significantly understocked despite the poor sales activity.
After the Federal Reserve decided to lower its main interest rate for the first time in over four years, mortgage rates fell to slightly over 6% in September. Although the central bank does not determine mortgage rates, changes in the 10-year Treasury yield are influenced by its operations as well as the direction of inflation. It is anticipated that the central bank’s policy change will eventually pave the way for a general decline in mortgage rates. However, that can alter if the policies of the incoming administration cause inflation to spike once more.
Sales of previously inhabited U.S. homes increased last month due in part to September’s decline in mortgage rates, which also probably contributed to increase demand earlier in the month.
The National Association of Realtors reported on Wednesday that its pending home sales index increased by 2% in October compared to the previous month, marking the third consecutive month-over-month increase. The number of pending transactions increased by 5.4% from October of the previous year.
Pending house sales serve as a predictor of future completed home sales because there is typically a one to two month lag between the signing of a contract and the completion of the home sale.
However, in what is already usually a quiet season for the home market, the fact that mortgage rates have mostly continued to rise in recent weeks may hurt sales this month and next.
According to Ralph McLaughlin, senior economist at Realtor.com, even if mortgage rates are probably going to drop in the upcoming weeks, the drop will come too little, too late, to increase home sales in December.
It is challenging to predict the direction of mortgage rates since they are impacted by a wide range of factors, including the economy, government spending, geopolitical tensions, and fluctuations in the stock and bond markets.
Although mortgage rates are expected to remain unstable this year, economists anticipate that they will normally linger around 6% in 2025.
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