The average rate for a 30-year U.S. mortgage has seen a slight decrease this week, settling at 6.18%, down from 6.21% the previous week, according to mortgage buyer Freddie Mac. This current rate is a significant drop from the same period last year when the average was 6.85%.
In contrast, the borrowing costs associated with 15-year fixed-rate mortgages, often favored by homeowners looking to refinance, have increased. This week’s average for 15-year mortgages stands at 5.50%, a modest rise from 5.47% last week, although still lower than the average of 6% recorded a year ago.
Several factors influence mortgage rates, including the Federal Reserve’s interest rate decisions and bond market investors’ forecasts regarding the economy and inflation. Typically, these rates move in alignment with the 10-year Treasury yield, which serves as a benchmark for pricing home loans. On Wednesday, the 10-year yield was noted at 4.15%, a slight increase from last week’s 4.12%.
The average rate on a 30-year mortgage has shown relative stability in recent weeks since plummeting to 6.17% on October 30, marking the lowest rate in over a year. This downward trend began in July as the market anticipated a series of Federal Reserve rate cuts, which officially started in September and have continued into the current month. While the Fed does not set mortgage rates directly, its reduction of short-term rates often indicates expectations for decreased inflation or slower economic growth, which can prompt investors to seek U.S. Treasury bonds and consequently lower long-term yields tied to home loans.
However, the correlation between Fed rate cuts and mortgage rates is not always straightforward. Homebuyers who are in a position to either pay cash or finance at the current rates are finding themselves in a more advantageous situation compared to a year ago. The market is seeing a notable increase in home listings year-over-year, with many sellers adjusting their initial prices in response to longer selling times, according to data from Realtor.com.
Despite these opportunities, affordability continues to be a significant hurdle for many prospective buyers, particularly first-time homeowners who lack the equity to help finance a new residence. Additionally, uncertainty surrounding the economy and the job market is causing many potential buyers to refrain from entering the market.
In terms of sales, the market for previously occupied homes experienced a rise in November compared to the prior month. However, this represents a slowdown when compared to the same time last year, marking the first decline since May, despite average long-term mortgage rates hovering at near-yearly lows. Overall, through November, home sales decreased by 0.5% compared to the same period in the previous year. Economists project that the average rate for a 30-year mortgage will likely remain slightly above 6% in the coming year.
