This week, the average long-term mortgage rate plummeted to its lowest level since September, providing a potential lift to a housing market that has been declining for nearly a year.
Mortgage purchaser Freddie Mac announced Thursday that the average 30-year rate decreased to 6.15% from 6.33% the previous week. Prior to one year, the average rate was 3.56%.
The average long-term rate reached a 20-year high of 7.08% in the fall, as the Federal Reserve continued to increase its benchmark lending rate in an effort to cool the economy and rein in inflation.
The significant increase in mortgage rates over the past year has stifled the housing industry, with existing home sales falling for ten consecutive months to the lowest level in almost a decade.
Despite the fact that housing prices have decreased as demand has decreased, they are nearly 11% higher than they were a year ago. Higher prices and a doubling of mortgage rates have made purchasing a home prohibitively expensive for a great number of individuals, but recent rate drops may give some purchasers renewed optimism.
“Rates are at their lowest level since September of last year, boosting both homebuyer demand and builder optimism,” said Sam Khater, chief economist at Freddie Mac. “Declining interest rates are providing the housing market with a much-needed boost, but the housing supply remains a persistent concern.”
The Federal Reserve hiked its rate by 0.50 percentage points at its last meeting of 2022, its seventh increase in the past year. This drove the main rate of the central bank to a range between 4.25 and 4.5 percent, its highest level in 15 years.
Fed policymakers have hinted that they may increase the central bank’s primary borrowing rate by another three-quarters of a point in 2023, bringing it to a range of 5% to 5.25 percent. This would occur despite the fact that consumer inflation has decreased for six consecutive months.
Rates for 30-year mortgages often match the 10-year Treasury yield, which lenders use as a benchmark for loan pricing. Inflation expectations of investors, the global demand for U.S. Treasuries, and the actions of the Federal Reserve can also impact the cost of home financing.
This week, the rate for a 15-year mortgage, which is popular among home refinancers, decreased to 5.28% from 5.58% previous week. The rate was 2.79% a year ago.
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