The average interest rate on US long-term mortgages fell to its lowest level in six weeks this week, just as the spring buying season begins.
Mortgage buyer Freddie Mac reported today that the average 30-year benchmark rate fell to 6.32% for the third straight week from 6.42% the previous week. The average rate a year ago was 4.67%.
The recent drop in mortgage rates is good news for prospective homebuyers, as many have been sidelined over the past year when the Federal Reserve raised its interest rate nine times in a row to bring down stubborn four-decade-high inflation.
Also helping buyers, home prices appear to be stabilizing. According to the National Association of Realtors, the national median home price fell 0.2% to $363,000 since February last year, marking the first annual decline in 13 years.
What hasn’t gotten much better is the supply of housing.
“In recent weeks, falling interest rates have brought borrowers back into the market, but as the spring homebuying season begins, low inventories remain a major challenge for potential buyers,” said Sam Khater, Freddie Mac’s chief economist.
The average long-term mortgage rate hit 7.08% in the fall – a two-decade high.
Rising borrowing costs can add hundreds of dollars a month to homebuyers’ expenses and slow down the real estate market. Before existing home sales rose 14.5% in February, they had fallen for 12 straight months at the slowest pace in more than a dozen years.
In 2022, existing U.S. home sales fell 17.8% from 2021, the weakest year for home sales since 2014 and the largest annual decline since the housing crisis began in 2008, the National Association of Realtors reported earlier this year.
In their latest quarterly economic forecasts, Fed policymakers predict that they expect to raise that benchmark rate just once more – from its new level of around 4.9% to 5.1%, the same high they forecast in December.
While Fed rate hikes affect borrowing rates for businesses and families across the board, 30-year mortgage rates typically follow movements in the 10-year Treasury yield, which lenders use as a guide to pricing loans. Investor expectations of future inflation, global demand for US Treasuries, and Federal Reserve interest rates can also affect the cost of borrowing to own a home.
Treasury yields have fluctuated wildly since the collapse of two mid-sized US banks two weeks ago. The yield on the 10-year Treasury bond, which helps set interest rates on mortgages and other major loans, was 3.57% today but was above 4% in early March.
The interest rate on a 15-year mortgage, popular among those refinancing their homes, fell to 5.56% this week from 5.68% last week. A year ago it was 3.83%.