The average long-term U.S. mortgage rate has slightly declined after five weeks of consecutive increases to reach a 21-year high. For potential homebuyers faced with rising home prices and limited inventory, this decrease provides some relief. According to Freddie Mac, the average rate on a 30-year home loan decreased from 7.23% to 7.18%. Although this is the lowest rate observed in the past two weeks, it remains above 7%. High rates have the potential to add hundreds of dollars to borrowers’ monthly costs, making it even more challenging for them to afford a home in an already unaffordable market. They may also deter homeowners, who locked in low rates two years ago, from selling their properties.
The rate for 15-year fixed-rate mortgages, which are popular among those seeking to refinance, remained unchanged at 6.55%. Comparatively, a year ago, it averaged 4.98%. Throughout August, mortgage rates increased alongside the 10-year Treasury yield, which is a key factor for lenders when determining mortgage and loan rates. The yield rose significantly as bond traders responded to reports indicating the continued resilience of the U.S. economy. This raised concerns that the Federal Reserve may decide to keep interest rates higher for longer in order to combat inflation.
However, this week, the 10-year Treasury yield has been falling due to reports that consumer confidence declined in August and job openings reached their lowest level since March of this year. Additionally, the government reported that the inflation measure closely monitored by the Federal Reserve, the personal consumption and expenditures report, remained low in July.
This recent volatility has made it challenging to predict the direction of mortgage rates. The Federal Reserve’s decision on interest rate hikes in September will provide more clarity. Sam Khater, Freddie Mac’s chief economist, stated, “Recent volatility makes it difficult to forecast where rates will go next, but we should have a better gauge in September as the Federal Reserve determines their next steps regarding interest rate hikes.”
While mortgage rates do not directly mirror the Fed’s rate increases, they often align with changes in the yield of the 10-year Treasury note. Market expectations for future inflation, global demand for U.S. Treasurys, and the Federal Reserve’s actions regarding interest rates can all influence mortgage rates.
The current average rate for a 30-year mortgage is more than double what it was two years ago, when it stood at just 2.87%. Subsequently, the surge in rates has led to a scarcity of available homes as homeowners who secured lower borrowing costs are now reluctant to sell and face higher rates on new properties. This lack of housing supply has also weighed on the sales of previously occupied U.S. homes, which have decreased by 22.3% during the first seven months of this year compared to the same period in 2022.
– Freddie Mac