LOS ANGELES — The average US long-term mortgage rate fell from a seven-month high this week, a welcome respite for homebuyers grappling with high borrowing costs and heightened competition for relatively few homes for sale.
Mortgage buyer Freddie Mac said Thursday that the average interest rate on the benchmark 30-year home loan fell to 6.71% from 6.79% last week. A year ago, the rate averaged 5.23%.
The fall follows three straight weekly increases that pushed the median rate to its highest level since early November, when it climbed to 7.08%.
The average interest rate on 15-year fixed-rate mortgages, popular with home refinancers, also fell this week, falling to 6.07% from 6.18% last week. A year ago, it averaged 4.38%, Freddie Mac said.
High interest rates can cost homebuyers hundreds of dollars a month and limit how much they can afford in a market that remains out of reach for many Americans after years of skyrocketing home prices. They’re also discouraging homeowners who bought or refinanced their home in recent years, when interest rates on a 30-year mortgage were around 3%, from selling them now that rates have roughly doubled. This is one of the reasons why the number of homes on the market remains near historic lows.
“While high interest rates and other affordability issues linger, inventory remains the number one obstacle for potential homebuyers,” said Sam Khater, Freddie Mac’s chief economist.
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The US housing market has been slow to regain traction this year, constrained by high mortgage rates and a low supply of available homes.
According to the National Association of Realtors, previously occupied U.S. home sales fell 23.2% in the 12 months ended April, representing nine straight months of annual sales declines of 20% or more.
The lack of homes on the market has helped prop up prices. The nationwide median home price fell to $388,800 in April — just 1.7% down from a year earlier.
Homebuyers who can afford to avoid the higher cost of taking out a home equity loan are increasingly doing so. About 33.4% of US homes bought in April were paid for in cash, according to data from real estate broker Redfin. That’s up from 30.7% last year and represents the largest share of cash purchases in nine years.
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Mortgage rates have risen in recent weeks, as has the 10-year Treasury yield, which lenders use as a guide to pricing loans. The yield hit 3.81% two weeks ago, its highest level since early March. It was up 3.74% in Thursday afternoon trade. Investor expectations of future inflation, global demand for US Treasuries, and the way the Fed handles interest rates affect home loan rates.
Uncertainty about what the Fed will do at its rate meeting next week and beyond could ratchet up the bond market and lead to more volatility in mortgage rates.
The Fed has raised interest rates 10 times in 14 months to bring down stubbornly high inflation. Fed Chair Jerome Powell and other central bank officials recently signaled that the Fed may forego another rate hike at this month’s policymakers’ meeting. Such a move would give the Fed time to assess the economic impact of its past rate hikes.