Average US long-term mortgage rate ticks down to 6.18% this week

U.S. mortgage rates dipped slightly this week, continuing a period of relative stability that has characterized the housing market for the past two months.

The average rate on a 30-year fixed mortgage fell to 6.18% from 6.21% last week, according to data released Wednesday by mortgage buyer Freddie Mac. This represents a significant year-over-year improvement, as rates averaged 6.85% during the same period in 2023.

Homeowners looking to refinance faced slightly higher costs, however, as the average rate on 15-year fixed-rate mortgages rose to 5.50% from 5.47% the previous week. While still an improvement from last year’s 6% average, the uptick highlights the fluctuating nature of the lending market.

The 30-year rate has remained remarkably consistent since October 30, when it dropped to 6.17% – its lowest point in more than a year. This stability comes as welcome news for potential homebuyers who have weathered extreme volatility in the housing market since the pandemic.

Mortgage rates typically follow the trajectory of the 10-year Treasury yield, which serves as a benchmark for lenders when pricing home loans. The 10-year yield stood at 4.15% by midday Wednesday, showing only a modest increase from last week’s 4.12%.

The Federal Reserve’s recent monetary policy decisions have played a significant role in the mortgage market’s stability. After initiating its first interest rate cut in September, the Fed continued with another reduction this month, signaling a shift away from the aggressive rate-hiking campaign that dominated much of 2022 and 2023.

While the Fed doesn’t directly set mortgage rates, its policy decisions influence investor behavior in ways that impact the broader lending environment. When the central bank cuts its short-term rate, investors often interpret this as a sign of lower inflation or slowing economic growth, potentially leading them to purchase more U.S. government bonds. This increased demand can push down yields on long-term Treasurys, which typically results in lower mortgage rates.

However, industry experts caution that Fed rate cuts don’t automatically translate to lower mortgage costs for consumers, as other economic factors also influence rates.

The current market presents distinct advantages for buyers with strong financial positions. According to data from Realtor.com, housing inventory has increased significantly compared to last year, and many sellers have reduced their asking prices as properties remain on the market longer. Cash buyers and those who can qualify for financing at current rates find themselves with more negotiating power than they had a year ago.

Despite these positive developments, affordability remains a significant hurdle for many potential homebuyers, particularly first-time purchasers without existing home equity to leverage. Economic uncertainty and concerns about job security continue to keep many would-be buyers on the sidelines, contributing to mixed results in housing market activity.

Recent data shows that sales of previously owned homes increased in November compared to October, but showed a year-over-year decline for the first time since May, despite mortgage rates hovering near their lowest point of the year. Through the first 11 months of 2023, home sales trail last year’s pace by 0.5%.

Looking ahead, economic forecasters generally predict that the average 30-year mortgage rate will remain slightly above 6% throughout 2024, suggesting that the current environment of moderately high but stable rates may persist for some time.

For prospective homebuyers, this period of relative rate stability offers an opportunity to enter the market with somewhat more predictable financing costs than were available during the extreme volatility of recent years.