Mortgage borrowing costs eased again this week, with the average rate on a 30-year mortgage falling to the lowest since early April.
LOS ANGELES — Mortgage borrowing costs eased again this week, with the average rate on a 30-year mortgage falling to the lowest level since early April.
Mortgage purchaser Freddie Mac said Thursday that interest rates fell to 6.87 percent from 6.95 percent last week. The average rate a year ago was 6.67 percent.
The average interest rate has remained roughly around 7% since April, and this marks the third consecutive week of declines. Rising mortgage rates could add hundreds of dollars a month to borrowers’ costs and limit homebuyers’ options.
Borrowing costs for 15-year fixed-rate mortgages, popular among homeowners looking to refinance, also eased this week, with the average rate falling to 6.13% from 6.17% last week. The average rate a year ago was 6.03%, according to Freddie Mac.
“Mortgage rates have fallen for a third consecutive week on signs of slowing inflation and market expectations of future Fed rate cuts,” said Sam Carter, chief economist at Freddie Mac.
Mortgage interest rates are influenced by several factors, including how the bond market reacts to the Federal Reserve’s interest rate policy and trends in the 10-year Treasury yield, which lenders use as a guide for pricing mortgages.
Yields have mostly fallen recently in response to economic data pointing to slowing economic growth, which could help tame inflationary pressures and prompt the Federal Reserve to start cutting its key interest rate from its highest level in more than two decades.
Federal Reserve officials said last week The central bank said inflation has fallen further toward its 2% target in recent months and signaled it expects to cut interest rates once this year. It had previously forecast up to three cuts in 2024.
Economists say long-term mortgage rates are unlikely to fall much until the Fed starts to cut short-term rates.
Still, mortgage rates “are likely to remain well above the 3.5% to 5% range that was common in the decade before the pandemic,” said Jiayi Xu, an economist at Realtor.com.
The average interest rate on a 30-year mortgage remains at a 20-year high, discouraging many would-be home buyers. Rising rates contributed to a weak spring home-buying season. U.S. existing home sales fell year-over-year. march and April Home buyers have been hit by rising borrowing costs and prices.
Another factor weighing on the housing market is a lack of supply of homes for sale. Though supply has increased this year as home sales drag on, the inventory of homes on the market remains well below pre-pandemic levels. A big factor is that many homeowners who bought or refinanced more than two years ago are reluctant to sell now and give up fixed-rate mortgages that are less than 3% or 4% down. Real estate experts call this trend the “lock-in” effect.
According to Realtor.com, as of the end of last year, more than 50% of homes with mortgages had interest rates below 4% and 87% had interest rates below 6%.
“While mortgage rates are unlikely to fall below 4 percent, if they are around 6 percent, it could provide a strong incentive for many sellers to put their homes on the market, increasing overall inventory and putting downward pressure on home prices,” Xu said.