The average interest rate on 30-year mortgages fell this week to its lowest level in 15 months, a welcome relief for homebuyers navigating a housing market that remains unaffordable for many Americans.
The interest rate fell from 6.49 percent in the previous week to 6.46 percent, said mortgage buyer Freddie Mac on Thursday. A year ago, the average interest rate was 7.23 percent.
The average interest rate is now at its lowest level since mid-May last year, when it was 6.39%.
Borrowing costs for 15-year fixed-rate mortgages also fell this week — good news for homeowners looking to refinance their mortgage at a lower rate. The average interest rate fell to 5.62% from 5.66% the previous week. A year ago, it averaged 6.55%, according to Freddie Mac.
Mortgage rates are expected to continue to fall overall this year as signs of easing inflation and a cooling labor market have raised expectations that the Federal Reserve will cut its benchmark interest rate at its monetary policy meeting next month, the first such easing in four years.
“Although mortgage rates have remained relatively stable in recent weeks, weaker economic data suggests that rates will trend slightly lower through the end of the year,” said Sam Khater, chief economist at Freddie Mac.
After soaring to a 23-year high of 7.79 percent in October, the average interest rate on a 30-year mortgage has hovered around 7 percent for most of this year — more than double what it was three years ago. But this month, the average rate has seen its sharpest decline in over a year, falling to about 6.5 percent.
The recent decline in overall mortgage rates has led to an increase in home refinance applications, which are 23 percent higher than a month ago, according to the Mortgage Bankers Association.
However, the number of applications for loans to purchase a home has declined.
“We expect interest rates will probably need to fall by another percentage point to stimulate buyer demand,” Khater said.
Increased mortgage rates, which can add hundreds of dollars to borrowers’ monthly costs, are keeping many potential homebuyers from purchasing a home, sending the slump in the American housing market into its third year.
Used home sales in the U.S. are below year-ago levels, although their four-month decline ended in July.
The interest rate on a 30-year mortgage is influenced by several factors, including how the bond market reacts to the central bank’s interest rate decisions. This can affect the trajectory of the 10-year U.S. Treasury yield, which lenders use as a guide for pricing home loans.
Yields, which exceeded 4.7 percent at the end of April, were at 3.86 percent in the bond market on Thursday afternoon after mixed data on the U.S. economy, which has slowed under the weight of high interest rates aimed at controlling inflation.
Most economists expect the average interest rate on a 30-year home loan to be above 6% this year, but with home prices at record highs and a shortage of homes for sale in many markets, that may not be enough for many potential homebuyers.
“Home prices are still rising in most markets,” said Lisa Sturtevant, chief economist at Bright MLS. “Opportunities for middle-income and first-time buyers will continue to be limited even as interest rates fall.”
