The trend of decreasing U.S. long-term mortgage rates continues, marking a fifth consecutive week of decline, offering a ray of hope to those aspiring to buy homes in a market that’s been largely unaffordable.
This recent drop has reduced the average interest rate on a 30-year mortgage to 7.22%, a slight decrease from the previous week’s 7.29%, as reported by mortgage purchaser Freddie Mac on Thursday. This rate is notably lower than the 6.49% average seen a year prior.
Currently, the average rate for a 30-year mortgage has reached its lowest point in 10 weeks, previously recorded at 7.19%.
Sam Khater, Chief Economist at Freddie Mac, notes a significant change in market attitudes over the past month, leading to the ongoing reduction in mortgage rates. He highlights that the current direction of mortgage rates is a positive sign for prospective homeowners, pointing out that the number of purchase applications has recently matched levels seen in mid-September, when the rates were similar to current figures.
Despite this series of reductions being good news for potential buyers, the average rate for a 30-year home loan is still considerably higher than it was two years ago when it hovered around 3%.
The increase in rates can significantly raise monthly expenses for borrowers, narrowing their affordability in a market already beyond the reach of many. This scenario also deters homeowners who secured exceptionally low rates two years ago from considering selling their homes.
The average rate for a 30-year home loan surpassed 6% in September 2022 and has since stayed above this benchmark. By late October, it had escalated to 7.79%, the highest since late 2000. This spike resulted in the median monthly payment on home loan applications in October jumping to $2,199, up 9.3% from the previous year, according to the Mortgage Bankers Association’s report on Thursday.
However, the recent decline in rates has encouraged more buyers to enter the market. The MBA noted a 0.3% week-over-week rise in home loan applications, adjusted for seasonal variations.
Despite these fluctuations, the housing market has been constrained this year due to high mortgage rates and a critically low supply of homes. Sales of existing U.S. homes slowed down in October, reaching their lowest rate in over 13 years, with a 20.2% decrease for the first 10 months of the year compared to the same period in 2022.
Interest rates on 15-year fixed-rate mortgages, favored by those refinancing their homes, have also seen a decrease. This week, the average rate fell to 6.56%, down from last week’s 6.67%. Just a year ago, this rate averaged 5.76%, as stated by Freddie Mac.
The decline in rates aligns with the recent drop in the 10-year Treasury yield, a benchmark for loan pricing. This yield, which a few weeks ago was over 5% (its highest since 2007), has decreased amid optimism that easing inflation might lead the Federal Reserve to lower rates.
As of midday Thursday, the yield on the 10-year Treasury stood at 4.32%, a slight increase from Wednesday’s 4.26%.
