Average long-term US mortgage rate falls again; at the lowest level since early April

LOS ANGELOS — Home borrowing costs eased again this week as the average rate on a 30-year mortgage fell to its lowest level since early April.

The rate fell to 6.87% from 6.95% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.67%.

This is the third straight weekly decline in the average rate, which has mostly moved around 7% since April. Higher mortgage rates can add hundreds of dollars a month in costs to borrowers, limiting homebuyers’ purchasing options.

Borrowing costs for 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also eased this week, bringing the average rate down to 6.13% from 6.17% last week. A year ago, it averaged 6.03%, Freddie Mac said.

“Mortgage rates fell for a third straight week on signs of cooling inflation and market expectations of an upcoming Fed rate cut,” said Sam Khater, chief economist at Freddie Mac.

Home loan rates are affected by several factors, including how the bond market reacts to the Federal Reserve’s interest rate policy and movements in the 10-year Treasury yield, which lenders use as a pricing guide. of home loans.

Yields have largely eased recently following some economic data showing slower growth, which could help keep a lid on inflationary pressures and persuade the Federal Reserve to start cutting its key interest rate from the highest level in more than 20 years.

Federal Reserve officials said last week that inflation has fallen further toward their target level of 2% in recent months and signaled that they expect to cut their key interest rate once this year. The central bank had previously forecast up to three cuts in 2024.

Until the Fed starts lowering its short-term rate, long-term mortgage rates are unlikely to ease significantly, economists say.

Even then, mortgage rates “will likely remain well above the 3.5% to 5% range that prevailed in the decade before the pandemic,” said Jiayi Xu, an economist with Realtor.com.

The average rate for a 30-year mortgage remains near a two-decade high, discouraging many potential homebuyers. The elevated prices contributed to a weak spring home buying season. Sales of previously occupied homes in the US fell in March and April as home buyers resisted rising borrowing costs and prices.

Another factor limiting the housing market is the limited supply of homes for sale. While it has increased this year, in part because properties are taking longer to sell, the inventory of homes on the market remains well below its pre-pandemic levels. A key factor is that many homeowners who bought or refinanced more than two years ago are reluctant to sell now and are giving up on their fixed-rate mortgages below 3% or 4% — a trend that real estate experts referred to as the “blocking” effect. .

As of late last year, more than 50% of homes with mortgages had a rate that was 4% or lower, and 87% had a rate at 6% or lower, according to Realtor.com.

“While it is unlikely that mortgage rates will fall below 4%, a rate around 6% could strongly motivate many sellers to list their homes, thereby increasing overall inventory and putting downward pressure on home prices,” Xu said.