The average long-term U.S. mortgage rate has eased this week, providing some relief to prospective homebuyers as the spring homebuying season approaches. According to mortgage buyer Freddie Mac, the average rate on a 30-year mortgage decreased to 6.63% from 6.69% last week. While this is positive news for potential homeowners, it is important to note that rates are still higher compared to the previous year's average of 6.09%.
Borrowing costs for 15-year fixed-rate mortgages, which are popular among homeowners refinancing their loans, also saw a slight decline. The average rate fell to 5.94% from 5.96% the previous week. However, compared to a year ago, when it averaged 5.14%, rates remain higher.
After reaching its peak of 7.79% last fall, the cost of financing a home has been gradually decreasing. This has helped to lower monthly mortgage payments, providing homeowners with more financial flexibility amidst rising prices and a shortage of homes for sale.
The movement of mortgage rates closely follows the fluctuations in the 10-year Treasury yield, which lenders use as a benchmark for loan pricing. The yield has recently decreased, fueled by hopes that inflation has cooled down enough for the Federal Reserve to consider cutting interest rates this year. Expectations for future inflation, global demand for U.S. Treasurys, and the actions of the Fed can all influence home loan rates.
In its most recent decision, the Federal Reserve left its main interest rate unchanged and signaled that it may not be appropriate to cut rates until it has more confidence that inflation is moving sustainably towards its goal of 2%. This news came as a surprise to many traders, as they had been betting on a rate cut in March. Despite this, many economists believe that mortgage rates will continue to decrease throughout the year, with forecasts suggesting an average rate on a 30-year home loan of around 6% by the end of 2022.
Sam Khater, Freddie Mac's chief economist, stated, 'Mortgage rates have been stable for nearly two months, but with continued deceleration in inflation we expect rates to decline further.' If rates continue to ease, it should boost the purchasing power of potential homebuyers during the busiest period for home sales - the spring season.
The U.S. housing market has been struggling over the past two years due to elevated mortgage rates and a limited supply of available homes. In fact, sales of previously occupied U.S. homes hit a nearly 30-year low last year, plummeting by 18.7% from 2020. Therefore, the decrease in mortgage rates is a positive development for the market.
Despite the recent easing, it is important to note that the average rate on a 30-year mortgage is still significantly higher than it was just two years ago, when it stood at 3.55%. This highlights the impact of fluctuations in the housing market and the need for potential homebuyers to carefully consider their financial situation before making a purchase.
