The average rate on a 30-year mortgage in the U.S. slightly decreased this week, settling at 6.81% compared to 6.84% the previous week. Despite this dip, the rate remains close to 7%, following a trend of mostly rising rates in recent weeks. However, it is worth noting that this rate is lower than a year ago when it averaged 7.22%.
On the other hand, borrowing costs for 15-year fixed-rate mortgages, which are popular among homeowners looking to refinance for a lower rate, increased this week to 6.1% from 6.02% last week. A year ago, the average rate for this type of mortgage was 6.56%.
Mortgage rates are influenced by various factors, including the yield on U.S. 10-year Treasury bonds, which serves as a benchmark for lenders in pricing home loans. The yield, which had been around 4.4% last week and dropped from below 3.70% in September, was at 4.23% midday Wednesday.
The combination of elevated mortgage rates and escalating home prices has made homeownership unattainable for many potential buyers, leading to a decline in U.S. home sales, which are on track for their worst year since 1995.
Despite the slight decrease in the 30-year fixed-rate mortgage this week, demand from potential homebuyers remains subdued, resulting in lackluster sales activity. Inventory levels have seen only modest improvement and continue to be significantly undersupplied.
In September, mortgage rates dropped to just above 6% following the Federal Reserve's decision to cut its main interest rate for the first time in over four years. While the central bank does not directly control mortgage rates, its actions and the trajectory of inflation impact movements in the 10-year Treasury yield. The Fed's recent policy shift is anticipated to eventually lead to a general decline in mortgage rates, although this could change if the policies of the incoming administration trigger a surge in inflation.
The decline in mortgage rates in September contributed to an uptick in sales of previously owned U.S. homes last month and likely boosted demand early this month. The National Association of Realtors reported a 2% increase in its pending home sales index for October compared to the previous month, marking the third consecutive monthly rise. Pending transactions were also up by 5.4% from October of the previous year.
However, the recent upward trend in mortgage rates could dampen sales in the current and upcoming months, particularly during a period that is traditionally slow for the housing market. Economists anticipate that mortgage rates will remain volatile throughout the year, with a general forecast of hovering around 6% in 2025.
