Average US long-term mortgage rate edges lower, remaining near its low for the year

The average rate on a 30-year U.S. mortgage dipped slightly this week to 6.21% from 6.22%, hovering near its lowest point for the year, according to data released Thursday by mortgage buyer Freddie Mac.

The modest decrease continues a period of relative stability in mortgage rates, which reached their 2023 low of 6.17% on October 30. This rate remains significantly below the 6.72% average seen during the same period last year, offering some relief to prospective homebuyers in a challenging housing market.

Similarly, 15-year fixed-rate mortgages—often used by homeowners refinancing existing loans—fell to 5.47% from 5.54% last week. The current rate marks a meaningful improvement from the 5.92% average recorded a year ago.

Mortgage rates typically track movements in the 10-year Treasury yield, which has remained stable at 4.12% over the past week. This benchmark is crucial for lenders when determining home loan pricing, as it reflects broader market expectations about economic growth and inflation.

Recent rate declines can be attributed to the Federal Reserve’s shift toward monetary easing. After aggressively raising interest rates to combat inflation throughout 2022 and early 2023, the central bank began cutting rates in September and continued with another reduction this month. A promising inflation report released Thursday could provide further justification for additional rate cuts in 2024.

However, industry experts caution that Fed actions don’t always translate directly to mortgage rate movements. In the fall of 2023, when the Fed implemented its first rate cut in more than four years, mortgage rates unexpectedly climbed instead of falling. By January 2024, rates had surpassed 7% as the 10-year Treasury yield approached 5%.

The current easing of mortgage rates has begun to stimulate housing market activity. Sales of previously owned homes increased in October compared to the previous year, marking the fourth consecutive month of year-over-year growth. The combination of lower rates and increased housing inventory has created more favorable conditions for buyers than existed a year ago.

“Mortgage rates have eased into the low-6% range and inventory remains well above last year’s levels, giving buyers more options and greater flexibility,” said Hannah Jones, senior economic research analyst at Realtor.com.

This improved environment has particularly benefited cash buyers and those who can qualify for financing at current rates. The market has shifted somewhat toward buyers, with sellers increasingly willing to negotiate on price as homes spend longer on the market. Many sellers have adjusted their initial asking prices downward to attract potential buyers.

Despite these positive developments, significant affordability challenges persist, especially for first-time homebuyers who lack equity from an existing property to put toward a purchase. Economic uncertainty and labor market concerns continue to keep many potential buyers on the sidelines.

The refinancing sector has seen substantial activity as homeowners with higher-rate mortgages take advantage of the lower rates. According to the Mortgage Bankers Association, refinance applications constituted 59% of all mortgage applications last week—the highest proportion since September.

Looking ahead, economists generally anticipate that the 30-year mortgage rate will remain slightly above 6% throughout 2024, which would represent an improvement from the higher rates seen earlier this year but still significantly above the sub-3% rates that dominated during the pandemic.

The housing market’s trajectory in 2024 will likely depend on how the broader economy performs, including employment figures, inflation trends, and the Federal Reserve’s continued approach to monetary policy.