The average 30-year mortgage rate in the U.S. has declined for the second consecutive week, offering a minor reprieve for potential homebuyers preparing for the spring housing market. However, rates remain just shy of the 7% mark, continuing to challenge affordability for many.
According to data from Freddie Mac, the average rate on a 30-year fixed mortgage dropped slightly to 6.95%, down from 6.96% the previous week. Compared to the same period last year, when the rate averaged 6.63%, the current levels remain elevated, keeping borrowing costs high for prospective buyers.
Meanwhile, 15-year fixed mortgage rates, often favored by homeowners looking to refinance, also saw a modest dip. This week, the average rate fell to 6.12%, compared to 6.16% last week. A year ago, it stood at 5.94%.
Factors Driving Mortgage Rate Fluctuations
Mortgage rates are heavily influenced by the bond market, particularly movements in the 10-year Treasury yield, which lenders use as a benchmark for home loan pricing.
Last fall, rates briefly dipped to a two-year low of just above 6% before rising again, mirroring a surge in the 10-year Treasury yield. After climbing as high as 4.79% recently, the yield stood at 4.53% as of midday Thursday. A combination of economic resilience, inflation concerns, and potential policy shifts—including tariff-related uncertainties—has contributed to bond market volatility.
Impact on Homebuyers and Market Conditions
Higher mortgage rates have dampened housing demand, prolonging a sales slump that began in 2022. While December saw a modest uptick in home sales, 2024 has already been marked as the weakest year for home sales in nearly three decades.
Freddie Mac’s chief economist, Sam Khater, pointed to ongoing affordability challenges as a major barrier:
“Driven by these higher rates and a persistent supply shortage, affordability hurdles still exist for many homebuyers and a significant number of them remain on the sidelines.”
Recent data suggests that home sales could face additional pressure in the coming months. The National Association of Realtors (NAR) pending home sales index—a key indicator of future housing activity—dropped 5.5% in December, reversing a four-month streak of gains.
Although inventory levels have been rising, increasing nearly 25% year-over-year, supply remains historically tight. For buyers who can manage higher borrowing costs or purchase with cash, the growing inventory may provide more options in a competitive market.
What’s Next for Mortgage Rates?
Despite hopes for lower rates, economists predict mortgage rates will stay above 6% throughout 2024, with projections ranging up to 6.8%.
The Federal Reserve’s decision to hold its benchmark interest rate steady this week signals a cautious approach, as policymakers evaluate inflation trends and economic conditions. While the Fed does not directly set mortgage rates, its policies influence broader financial markets, keeping mortgage rates within a relatively narrow range for now.
Mike Fratantoni, chief economist at the Mortgage Bankers Association, noted:
“With the Fed on hold, we do expect that longer-term rates, including mortgage rates, will also stay within a narrow range for the foreseeable future.”
For homebuyers and investors, the key takeaway is that mortgage rates may not see significant relief in the near term. Those in the market for a home will need to weigh the potential risks and benefits of purchasing in a higher-rate environment versus waiting for more favorable conditions.
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