Long-term US mortgage rate falls to 6.67%

The average long-term mortgage rate in the U.S. decreased for the third time in as many weeks, providing homebuyers with a much-needed lift in a housing market constrained this year by a lack of available properties.

According to mortgage buyer Freddie Mac, the benchmark 30-year home loan’s average rate dropped from 6.69% last week to 6.67% this week. The rate was 5.81% on average a year ago.

This week, the average rate on 15-year fixed-rate mortgages, which are popular with homeowners refinancing, decreased as well, falling to 6.03% from 6.10% the previous week. According to Freddie Mac, the average was 4.92% a year ago.

With the most recent decrease, the 30-year mortgage average rate is now at its lowest point since the final week of May, when it was 6.57%. In the first week of June, the average increased to 6.79%, the highest point thus far this year.

A decrease in mortgage rates might result in monthly savings of hundreds of dollars for prospective homeowners. That can make a significant difference at a time when the number of available homes is at an all-time low, which encourages bidding wars that help prevent prices from dropping drastically after rising in previous years.

Even after the ultra-low rates sparked a rush of house sales and refinancing two years ago, the average rate on a 30-year mortgage is still more than twice what it was. Homeowners who locked in those reduced borrowing costs two years ago are being discouraged from selling as a result of the significantly higher rates currently in place.

The National Association of Realtors reported Thursday that the lack of available homes is a major factor in the third consecutive month’s decline in sales of previously inhabited homes in the United States.

For much of the last decade, low mortgage rates supported the housing industry by making it easier for borrowers to fund steadily rising home prices. When the Federal Reserve started raising its benchmark short-term rate in an effort to slow the economy and reduce inflation, that pattern started to turn around a little more than a year ago.

Home loan interest rates are influenced by factors such as investor predictions of future inflation, demand for U.S. Treasury securities on a global scale, and the Fed’s interest rate decisions.

Starting in March 2022, the Fed increased its benchmark rate ten times in total. But at its policymakers’ meeting last week, the central bank decided against making yet another rise. However, the Fed warned that in its fight against inflation, it may increase interest rates twice this year.

Due to this open-ended strategy, the Fed’s next steps are more unpredictable, which would cause mortgage rates to swing more erratically.

Stubborn inflation is cooling somewhat

In light of recent rate decisions by the Fed and lagging economic data, the rate for a 30-year fixed-rate mortgage has fluctuated. However, inflation and positive news for new buildings are assisting in lowering interest rates.

While the headline Consumer Price Index decreased significantly in May to 4%, according to Jiayi Xu, an economist at Realtor.com, the core CPI, which includes goods and services excluding volatile food and energy, has not decreased like the overall inflation in recent months, posing a concern for policymakers.

She continued by saying that the industry would experience a quicker decrease in inflation in the upcoming months because the increase of the shelter index, which accounts for the majority of inflation growth, has passed it’s high and has begun to trend downward since April.

Meanwhile, in a bid to reduce inflation to 2%, the Fed decided last week not to raise its benchmark lending rate. Instead, it decided to wait for more information and assess how previous rate hikes impact price rises and the real economy.

The Fed does not directly establish the interest rates that mortgage borrowers pay, but its activities impact them. Mortgage rates often follow the yield on 10-year U.S. Treasuries, which fluctuates depending on a combination of what investors anticipate the Fed will do, what the Fed actually does, and how the Fed is received. Mortgage rates often increase when Treasury yields rise and decrease when they fall.

Mortgage rates will be high for the rest of the year

Mortgage rates will be high for the rest of the year due to the possibility of further rate increases, said Xu.

As a result, affordability will still play a significant role in homebuyers’ selections.

According to new research from Realtor.com, home buyers continue to swarm to relatively cheap markets where homes are listed below the national median price, causing noticeable price growth in these otherwise economic areas.

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According to Xu, the increased competition in these sectors could make it more difficult for purchasers with limited budgets, especially given the already scarce supply of cheap housing.

April saw a significant increase in the building of new homes, an indication that the builders are confident that there will be a market for them.

Although the increase in new development is positive, Xu stated that there was a pressing need to construct residences that catered to all economic levels.

According to a new study by the National Association of Realtors and Realtor.com, there is a shortfall of roughly 300,000 houses that are affordable to middle-class earnings, who are most harmed by the lack of inventory and low levels of affordability.

Reference: Average long-term US mortgage rate falls to 6.67%, third straight drop since climbing to 2023 high