In a welcome reprieve for homebuyers, mortgage rates have dipped to their lowest since early April. The average rate for a 30-year fixed mortgage fell to 6.87% this week from 6.95% last week, according to Freddie Mac. A year ago, it was at 6.67%.
This marks the third consecutive weekly decline, breaking the cycle of rates hovering around 7% since April. Higher rates can add hundreds of dollars to monthly payments, squeezing homebuyers’ budgets and limiting their options.
Meanwhile, the 15-year fixed-rate mortgage, favored by those refinancing, also saw a drop. The average rate slid to 6.13% from 6.17% last week. A year ago, it stood at 6.03%.
“Mortgage rates fell for the third straight week following signs of cooling inflation and market expectations of a future Fed rate cut,” said Sam Khater, Freddie Mac’s chief economist.
Mortgage rates are driven by a mix of factors, including the bond market’s response to the Federal Reserve’s interest rate policies and shifts in the 10-year Treasury yield, a key benchmark for lenders.
Recently, yields have eased, reflecting economic data hinting at slower growth. This trend could keep inflation in check and prompt the Federal Reserve to consider cutting its main interest rate, currently at its highest in over two decades.
Federal Reserve officials noted last week that inflation is nearing their 2% target and hinted at a possible rate cut later this year, though they previously projected as many as three cuts in 2024.
Until the Fed starts lowering its short-term rates, significant drops in lon-term mortgage rates are unlikely, experts say.
Despite this week’s dip, the average 30-year mortgage rate remains near its 20-year high, a deterrent for potential buyers.
These elevated rates have dampened the spring homebuying season, with sales of previously owned homes falling in March and April as buyers grappled with high borrowing costs and prices.
This decline in mortgage rates could offer a glimmer of hope for those looking to enter the housing market, but the road ahead remains challenging. The interplay between economic signals and Federal Reserve policies will continue to shape the landscape for homebuyers.
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