Average US long-term mortgage rate edges higher, but still near lowest point in more than 3 years

U.S. mortgage rates edged higher this week but remain near their lowest levels in more than three years, offering a potential ray of hope for a housing market that has struggled with affordability challenges since 2022.

The benchmark 30-year fixed-rate mortgage rose slightly to 6.09% from 6.06% last week, according to data released Thursday by mortgage buyer Freddie Mac. While this represents a marginal increase, current rates remain significantly lower than a year ago, when the average stood at 6.96%.

Similarly, 15-year fixed-rate mortgages, which are popular refinancing options for existing homeowners, increased to 5.44% from 5.38% last week. This rate also shows substantial improvement from the 6.16% recorded during the same period last year.

The modest uptick in mortgage rates can be attributed to recent movements in the bond market. The 10-year Treasury yield, which typically serves as a guide for mortgage pricing, climbed to 4.27% on Thursday from 4.17% a week earlier. This increase came amid heightened geopolitical tensions, including tariff threats by the Trump administration, disputes over Greenland, and instability in Japan’s bond market.

While the recent increase in rates represents a small setback, it comes against a backdrop of a prolonged housing market slump that began in 2022 as mortgage rates started climbing from their pandemic-era lows. This rise in borrowing costs, combined with years of escalating home prices and a persistent shortage of available housing inventory, has sidelined many potential homebuyers.

The construction industry’s failure to keep pace with demand over the past decade has exacerbated the shortage, pushing sales of previously owned homes to 30-year lows last year. Many would-be buyers continue to postpone purchasing decisions due to economic uncertainty and concerns about job security.

However, the gradual decline in mortgage rates that started in late summer last year has begun to stimulate some activity in the housing market. December saw a 5.1% month-over-month increase in existing home sales, suggesting that lower rates are starting to have a positive impact on buyer behavior.

The declining rate environment has also sparked increased interest in refinancing. According to the Mortgage Bankers Association, applications for mortgage refinancing surged by 20% last week compared to the previous week, accounting for nearly 62% of all home loan applications. Applications for home purchase loans also saw a 5% increase.

Market experts anticipate that mortgage rates will continue their downward trajectory through 2024, though most forecasts suggest the average 30-year mortgage rate will remain above 6% — approximately double what it was six years ago. This outlook presents a mixed picture for potential homebuyers and those considering refinancing.

For many existing homeowners, however, current rates may not be attractive enough to warrant refinancing. Nearly 69% of U.S. homes with outstanding mortgages have fixed rates of 5% or lower, and slightly more than half have rates at or below 4%, according to data from Realtor.com. These homeowners would need to see significantly lower rates before refinancing becomes financially advantageous.

The Federal Reserve’s interest rate policy decisions will continue to influence mortgage rate trends, as will broader economic indicators and inflation expectations. As the central bank considers potential rate cuts later this year, mortgage rates could see further declines, potentially providing more breathing room for a housing market that has been under pressure for nearly two years.

For now, the housing market remains in a transitional phase, with affordability challenges persisting despite the modest improvements in borrowing costs. Industry observers will be closely monitoring whether the current rate environment can sustain the slight uptick in market activity witnessed in recent months.