NEW YORK, August 2 – The average rate for a 30-year fixed mortgage has fallen to its lowest point since early February, potentially easing the financial burden for prospective homebuyers in a market characterized by record-high home prices.
According to data released Thursday by mortgage buyer Freddie Mac, the rate dropped to 6.73% from 6.78% the previous week. This marks a slight decrease from the 6.9% rate recorded a year ago.
The 15-year fixed-rate mortgage, a popular choice for refinancing, also saw a decline, with the average rate falling to 5.99% from 6.07% last week. This represents a decrease from the 6.25% average rate observed a year ago.
The recent drop comes after mortgage rates hit a 23-year high of 7.79% in October. Since then, rates have generally hovered around 7%, which is still more than double the rates seen just three years ago.
These elevated borrowing costs have significantly impacted the housing market, contributing to a three-year slump in home sales. June saw the fourth consecutive monthly decline in sales of previously occupied homes, while new single-family home sales in July fell to their slowest annual pace since November.
However, the recent rate decrease reflects signs of cooling inflation, which has fueled expectations that the Federal Reserve may cut its benchmark rate in September. Mortgage rates are influenced by various factors, including the bond market’s reaction to the Fed’s interest rate policy decisions.
The yield on the 10-year Treasury note, a key benchmark for mortgage pricing, has recently declined to its lowest level since February, trading at 3.98% in midday bond market activity. This drop from late April’s peak of 4.7% suggests the potential for further easing of mortgage rates.
Freddie Mac’s chief economist, Sam Khater, noted that while expectations of a Fed rate cut and cooling inflation are positive signs for the market, lingering affordability concerns may temper immediate enthusiasm among buyers.
Despite the recent rate decrease, most economists anticipate the average 30-year mortgage rate to remain above 6% throughout the year. This level may not be low enough to attract potential buyers who have been waiting for more significant rate reductions or to motivate homeowners with very low rates to sell.
Data from Realtor.com indicates that 86% of all outstanding home mortgages have an interest rate below 6%, with over three-quarters at 5% or lower. This disparity between current and historical rates continues to impact market dynamics.
While the potential September rate cut by the Fed is seen as a positive step, subsequent decreases in mortgage rates may be less dramatic than anticipated. Jiayi Xu, an economist at Realtor.com, suggests that much of the expected rate reduction has already been priced into the market, as reflected in recent rate drops.
As the housing market continues to navigate these shifting economic conditions, potential homebuyers and industry professionals alike will be closely monitoring future rate trends and their impact on affordability and market activity.
