The average rate on a 30-year mortgage eased again this week, extending a welcome trend for prospective homebuyers facing record-high home prices.
The rate fell to 6.86% from 6.87% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.71%.
This is the fourth straight weekly drop in the rate, which has mostly hovered around 7% this year. Home sales have been falling in recent months as the elevated rates, which can add hundreds of dollars a month in costs for borrowers, have put off many home shoppers.
Sales of previously occupied U.S. homes fell in May for the third month in a row. Sales of newly built single-family homes fell in April and May from a year earlier by 7.7% and 16.5%, respectively.
“The 30-year fixed-rate mortgage continues to trend down, hitting the lowest level in almost three months,” said Sam Khater, Freddie Mac’s chief economist. “By historical standards, the economy is in good shape, and we expect rates to continue to come down over the summer months, bringing additional homebuyers back into the market.”
Mortgage rates are influenced by several factors, including how the bond market reacts to the Federal Reserve’s interest rate policy and the moves in the 10-year Treasury yield, which lenders use as a guide to pricing home loans.
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The yield, which topped 4.7% in late April, has been mostly falling recently following some economic data showing slower growth, which could help keep a lid on inflationary pressures and convince the Federal Reserve to begin lowering its main interest rate from its highest level in more than 20 years.
Earlier this month, Fed officials said that inflation has moved closer to its target level of 2% in recent months and signaled that they expect to cut their benchmark interest rate once this year. The central bank had previously projected as many as three cuts in 2024, which raised expectations in the housing market for mortgage rates to have eased further by now.
With only one rate cut expected before the end of this year, “relief may come too little and too late for many first-time homebuyers,” said Jiayi Xu, an economist at Realtor.com.
“For home shoppers and sellers, peak mortgage rates are likely behind us, but the risk of volatility remains, complicating moving decisions,” Xu noted.
As rates eased in recent weeks, so did the monthly payments home shoppers agreed to take on when applying for a mortgage.
The national median monthly payment listed on home loan applications in May was $2,219, down 1.6% from the previous month, but up 2.5% from May last year, according to the Mortgage Bankers Association.
MBA is forecasting mortgage rates will drop closer to 6.5% by the end of this year.
That may not be enough to entice homeowners who bought or refinanced when rates were below 4% or 3% to sell, as nearly 90% of homes with a mortgage have a rate at 6% or lower.
Meanwhile, mortgage rates ticked up this week for 15-year fixed-rate loans, popular with owners refinancing their home loans. They averaged 6.16% this week, up from 6.13% the week before. A year ago, it averaged 6.06%, Freddie Mac said.
-- The Associated Press