After rising for five weeks in a row, the average rate on a 30-year mortgage in the United States dipped this week to slightly under 7%.
According to Freddie Mac, a mortgage buyer, the rate dropped from 7.04% to 6.96% last week on Thursday. It averaged 6.69% a year ago.
This week also saw a decrease 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 was 6.27%; this week, it was 6.16%. According to Freddie Mac, it averaged 5.96% a year ago.
Although there are still issues with affordability, this is good news for prospective homeowners, as evidenced by a rise in purchase applications, according to chief economist Sam Khater of Freddie Mac.
The Mortgage Bankers Association reports that although mortgage applications increased somewhat last week, they have been muted in recent weeks due to the average rate on a 30-year home loan remaining at about 7%.
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The drop in home loan prices this week is a result of a retreat in bond yields, particularly the yield on the US 10-year Treasury, which lenders use to determine mortgage prices. The yield, which was at 3.62% in mid-September, surged to 4.78% early last week in response to positive U.S. economic data and concerns that tariffs and other Trump administration policies would increase inflation in tandem with economic expansion.
At midday Thursday, the yield on the 10-year Treasury was 4.64%.
The bond market’s response to the Federal Reserve’s interest rate policy decisions is one of the many variables that affect mortgage rates. Since the Fed indicated last month that it would only be lowering its benchmark interest rate twice this year, as opposed to the four cuts it had predicted in September, home loan rates have been largely climbing. Next week is the next scheduled meeting of the central bank’s policymakers.
A nationwide decline in home sales that started in 2022 has been prolonged by high mortgage rates, which can increase borrowers’ monthly expenses by hundreds of dollars.
The housing market was on course to finish 2024 as its worst year for sales since 1995, despite the fact that sales of previously inhabited U.S. homes increased in November for the second consecutive month. Data on home sales for the entire year is due on Friday.
As mortgage rates and prices have increased in recent years, many prospective homebuyers have been priced out of the market. In the four weeks ending January 19, the typical monthly housing payment in the United States increased to $2,686, per a Redfin research. It hasn’t been that high in about seven months.
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.
According to a number of experts’ projections, the average 30-year mortgage rate will stay above 6% this year, with some even predicting an upper range of 6.8%.
According to Bob Broeksmit, CEO of the Mortgage Bankers Association, inflationary worries and uncertainties surrounding economic and monetary policy will probably keep mortgage rates high for the foreseeable future.
— The Associated Press’s Alex Veiga
