There is little respite for potential homebuyers anticipating the spring homebuying season as the average rate on a 30-year mortgage in the United States decreased for the second consecutive week, but it is still just below 7%.
Mortgage buyer Freddie Mac reported on Thursday that the rate dropped from 6.96% to 6.95% from the previous week. It averaged 6.63% 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 6.16%, but it now stands at 6.12%. According to Freddie Mac, it averaged 5.94% a year ago.
The bond market’s response to the Federal Reserve’s interest rate policy decisions is one of the many variables that affect mortgage rates. Echoing a steep increase in the 10-year Treasury yield, which lenders use as a benchmark for pricing house loans, the average rate on a 30-year mortgage has been rising since last September, when it briefly dropped to a 2-year low just above 6%.
Fears that inflation may continue to be stubbornly higher than the Fed’s 2% target caused the yield, which was at 3.62% in mid-September, to rise to 4.79% two weeks ago. Bond yields have also risen as a result of the strong US economy and concerns about possible tariffs and other policies from President Donald Trump.
At midday Thursday, the yield on the 10-year Treasury was 4.53%.
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 worst year for home sales in over 30 years was 2024, which was worse than 2023, which had been the worst in decades, even though sales of previously inhabited U.S. homes increased in December for the third consecutive month.
According to Sam Khater, chief economist at Freddie Mac, affordability barriers still affect many purchasers, and a sizable portion of them stay on the sidelines as a result of these rising rates and a continuing supply shortfall.
There may be more drops in the months ahead, according to new data on pending house sales. The trade group reported Thursday that the National Association of Realtors’ pending home sales index ended a four-month upward trend in December, dropping 5.5% from the previous month. The number of pending transactions decreased by 5% from December 2023.
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.
The number of houses on the market has been rising as home sales have stalled. According to Realtor.com, the number of homes for sale nationwide is up about 25% this month compared to a year ago, even if it is still low by historical standards.
For homebuyers who can afford to pay cash or with mortgage rates as they are, this is fantastic news.
Economists, however, say it is doubtful that mortgage rates will drop much, despite the hopes of some.
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%.
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Following three consecutive rate cuts last year, the Federal Reserve maintained its benchmark interest rate constant on Wednesday, indicating a more cautious stance as it looks to predict the direction of inflation and the policies the Trump administration will implement.
Although mortgage rates are not regulated by the Fed, the central bank’s decision to maintain its main interest rate at its current level suggests that mortgage rates won’t move substantially in the foreseeable future.
According to Mike Fratantoni, chief economist of the Mortgage Bankers Association, “we do expect that longer-term rates, including mortgage rates, will also stay within a narrow range for the foreseeable future” with the Fed on pause.
— The Associated Press’s Alex Veiga
