Four-week decline offers slight relief to prospective homebuyers
The average rate for a 30-year fixed U.S. mortgage dropped to 6.77% this week, its lowest level since early May, according to Freddie Mac. This marks a slight decline from last week’s 6.81% and offers some relief for prospective buyers facing a still-stagnant housing market. A year ago, the same loan averaged 6.86%.
Shorter-term rates also eased. The average 15-year mortgage rate fell to 5.89%, down from 5.96% last week and below the 6.16% recorded a year earlier. These rates, often used by refinancing homeowners, remain significantly elevated compared to pandemic-era lows but have inched downward amid recent declines in bond yields.
Market still challenged by affordability issues
High borrowing costs continue to weigh heavily on the housing sector. Mortgage rates hovering near 7% since early 2023 have priced many potential buyers out of the market, contributing to a deep slump in existing home sales. In 2023, sales fell to their lowest level in nearly three decades, and activity remains subdued in 2024.
The new-home market is also under pressure. Sales of new single-family homes fell nearly 14% in May, according to government data. While home prices have cooled slightly, they remain high in most regions, compounding the impact of elevated rates on affordability.
Signs of potential rebound
Some forward-looking indicators suggest modest improvement. Pending home sales rose 1.8% in May and were up 1.1% from a year earlier, according to the National Association of Realtors. This may signal a small uptick in future closings as more buyers enter contracts amid slightly improved financing conditions.
“Stuck in a bit of a rut, the housing market continues to suffer from high home prices and elevated mortgage rates,” said Hannah Jones, senior economic research analyst at Realtor.com. “However, climbing for-sale inventory in much of the country could help soften upward price pressure and usher in a more friendly housing market for buyers.”
Bond market drives rates lower
Mortgage rates are closely linked to the 10-year U.S. Treasury yield, which recently fell to 4.28%, down from 4.58% just weeks earlier. Rates have declined for four straight weeks, mirroring this trend. The current average mortgage rate is now slightly above this year’s low of 6.62%, reached in April, and well below the mid-January peak of just over 7%.
Mortgage applications rose 1.1% last week, suggesting some renewed buyer activity. Economists expect rates to remain range-bound between 6% and 7% through the remainder of the year, barring major shifts in Federal Reserve policy or economic indicators.
