In a welcome development for prospective homebuyers, the average long-term U.S. mortgage rate has dipped below 7%, marking its lowest level since early August. The announcement comes amidst a backdrop of heightened borrowing costs and intense competition for a limited inventory of homes for sale, factors that have constrained the housing market in recent times.
According to mortgage buyer Freddie Mac, the average rate on a 30-year mortgage has dropped to 6.95% from 7.03% the previous week. This rate is significantly lower than the 6.31% average seen a year ago. For those opting for 15-year fixed-rate mortgages, which are popular among homeowners refinancing their home loans, the average rate edged up slightly to 6.38% from 6.29% last week but remains notably higher than the 5.54% average recorded a year ago.
The recent decline in mortgage rates is a positive development for potential homebuyers who have faced rising costs and limited housing options. The sharp increase in mortgage rates that began early last year has contributed to higher borrowing costs, reducing the purchasing power of prospective buyers. This, combined with a persistent shortage of available properties, has led to a 20.2% decline in sales of previously occupied U.S. homes through the first 10 months of the year.
The Federal Reserve’s decision to keep its main interest rate steady for the third consecutive time, along with signals from officials about potential rate cuts starting as early as next summer, has contributed to this downward shift in mortgage rates. The central bank’s stance on inflation, global demand for U.S. Treasurys, and decisions related to its benchmark federal funds rate are key factors influencing home loan rates.
Freddie Mac’s chief economist, Sam Khater, anticipates a gradual improvement in the housing market in the new year, attributing it to the continued deceleration of inflation and the Federal Reserve’s indications of future rate adjustments. The recent dip in mortgage rates has already shown positive effects, with mortgage applications experiencing a sixth consecutive weekly increase, as reported by the Mortgage Bankers Association.
While the current average rate on a 30-year mortgage is lower than in previous weeks, it remains notably higher than two years ago when it stood at 3.12%. This substantial difference has contributed to the existing low inventory of homes for sale, as homeowners who secured historically low rates two years ago are less incentivized to sell in the current market.
As the real estate landscape experiences a shift with more favorable mortgage rates, potential homebuyers are likely to find increased opportunities in the coming months.