The average 30-year mortgage rate fell for the second week in a row, to 6.35%, the lowest level in more than a year.
This decline provides some relief to potential homebuyers who are struggling with high home prices.
According to Freddie Mac, the rate has dropped from 6.46% the previous week. A year ago, the average rate was 7.18%. The last time the rate was this low was May 11, 2023.
Rates for 15-year fixed-rate mortgages, which are popular among refinancers, also fell this week. The average rate fell to 5.51% from 5.62% last week, compared to 6.55% a year earlier.
Freddie Mac’s chief economist, Sam Khater, attributed the decline to expectations of a Federal Reserve rate cut. He stated that, while mortgage rates are expected to continue to fall, a significant rebound in home purchase activity is still uncertain until further reductions occur.
The outlook for mortgage rates is influenced by broader economic conditions, including Federal Reserve policy. Recent signs of cooling inflation and a slowing labor market have fueled speculation that the Fed will cut its benchmark interest rate next month for the first time in four years. This expectation has contributed to a drop in the 10-year Treasury yield, which is an important factor in determining mortgage rates.
The 10-year Treasury yield, which surpassed 4.7% in late April, has now fallen to around 3.9%. According to CME Group data, market expectations indicate that the Fed will cut interest rates by at least one percentage point by the end of the year.
However, Ralph McLaughlin, senior economist at Realtor.com, cautioned that the bond market has likely priced in potential rate cuts, which may limit further mortgage rate declines. He warned against expecting an accelerated drop unless economic indicators point to a more severe downturn.
Most economists expect the average 30-year mortgage rate to remain above 6% throughout the year. Realtor.com predicts that rates will not fall below 6.3% by the end of the year.
After reaching a 23-year high of 7.79% in October 2023, the average 30-year mortgage rate has remained around 7% for the majority of the year. Higher interest rates have increased borrowers’ costs and contributed to a prolonged housing market slump.
Sales of previously occupied US homes have been lower than last year, but they rebounded in July due to lower mortgage rates. Nonetheless, pending home sales, a leading indicator of future transactions, have fallen, implying a further slowdown in the housing market.
