CHICAGO — The average interest rate on long-term U.S. mortgages experienced a modest decline this week, marking the first decrease in six weeks. This slight easing offers a glimmer of relief for prospective homebuyers, though borrowing costs continue to be steeper than they were a year ago.
According to data released by mortgage buyer Freddie Mac on Thursday, the benchmark 30-year fixed-rate mortgage rate has fallen to 6.67%. This represents a decrease from the 6.69% reported the previous week. For context, the average rate stood at 6.58% at this time last year.
The impact of higher mortgage rates can be substantial for borrowers, potentially adding hundreds of dollars to monthly payments and consequently limiting purchasing power. This has led some prospective homeowners to postpone their buying decisions, a trend observed as rates climbed in preceding weeks. U.S. sales of previously-occupied homes, for instance, saw a slowdown in July.
Fifteen-Year Mortgages Also See Slight Reduction
Borrowing costs for 15-year fixed-rate mortgages, a popular choice for homeowners looking to refinance, also experienced a slight reduction this week. The average rate for these loans is now 5.96%, down from 6.01% reported last week. However, this figure remains higher than the 5.71% average recorded by Freddie Mac for 15-year fixed-rate mortgages a year ago.
Factors Influencing Mortgage Rate Movements
Several key factors influence mortgage rates, including inflation trends, decisions by the Federal Reserve regarding its policy rates, and the expectations of bond market investors concerning the broader economy. Generally, mortgage rates tend to follow the trajectory of the 10-year Treasury yield, which serves as a benchmark for lenders when pricing home loans.
The 10-year Treasury yield has seen a slight easing recently, mirroring the movement in mortgage rates. As of midday trading on Thursday, the 10-year Treasury yield stood at 4.61%, a decrease from 4.72% at the beginning of the week.
Consumer and wholesale inflation in the U.S. also showed signs of cooling last month, with prices continuing to rise, albeit at a slower pace. If this disinflationary trend persists, it could lead the Federal Reserve to refrain from further interest rate hikes. Both mortgage rates and the bond market have largely trended upward this year, partly influenced by the U.S. conflict with Iran, which fueled expectations of increased inflation due to soaring crude oil prices.
Despite recent easing in oil prices, long-term bond yields have not fully returned to their pre-conflict levels. Before the conflict began in late February, the 10-year Treasury yield was at 3.97%. At that time, 30-year and 15-year mortgage rates, according to Freddie Mac, were approximately 5.98% and 5.44%, respectively, underscoring the current elevated cost of borrowing for homebuyers.
