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The average long-term U.S. mortgage rate has dipped below 6% for the first time since September 2022, potentially energizing the spring home-buying season after months of market stagnation.
The benchmark 30-year fixed rate mortgage fell to 5.98% from 6.01% last week, according to data released Thursday by mortgage buyer Freddie Mac. The current rate sits significantly lower than the 6.76% average from the same period last year, marking the third consecutive weekly decline.
This rate milestone brings mortgage costs to their lowest point in approximately 18 months, a development that could entice hesitant homebuyers back into the market as seasonal activity typically accelerates.
Mortgage rates generally follow the trajectory of the 10-year Treasury yield, which lenders use as a guide for home loan pricing. The 10-year Treasury yield stood at 4.02% Thursday, down from approximately 4.07% a week earlier. Multiple factors influence these rates, including Federal Reserve policy decisions and bond market expectations about economic conditions and inflation.
“Assuming rates stay below 6%, buyers and sellers are going to start getting back into the market,” said Lisa Sturtevant, chief economist at Bright MLS. “March is when the spring home-buying season typically begins to ramp up and with rates at a three-and-a-half year low, it could be a barn burner of a spring home-buying season.”
Despite the recent downward trend in mortgage rates, the housing market has struggled to recover from its prolonged slump that began in 2022 when rates started climbing from pandemic-era lows. Sales of previously owned homes remained at 30-year lows throughout 2023, and January 2024 saw the largest monthly drop in nearly four years, reaching the slowest annualized pace in more than two years.
The housing market faces significant structural challenges beyond interest rates. A sharp run-up in home prices, particularly during the early years of this decade, combined with a chronic nationwide housing shortage exacerbated by years of below-average construction, has left many prospective buyers priced out of the market regardless of mortgage rate fluctuations.
Another obstacle to market recovery involves the substantial number of homeowners who secured advantageous financing during the ultra-low rate environment of recent years. Nearly 69% of U.S. homes with outstanding mortgages have fixed rates of 5% or lower, while slightly more than half enjoy rates at or below 4%, according to Realtor.com data. This “rate lock” effect discourages many potential sellers from entering the market, as moving would mean trading their favorable financing for significantly higher rates.
Not all mortgage products saw rates decrease this week. The average rate for 15-year fixed-rate mortgages, popular among homeowners refinancing their loans, increased to 5.44% from 5.35% last week. However, this still represents improvement from the 5.94% average recorded one year ago.
The declining rate environment has stimulated refinancing activity. Mortgage applications increased 0.4% last week from the previous week, primarily driven by homeowners applying to refinance their existing mortgages, according to the Mortgage Bankers Association. Refinancing applications constituted 58.6% of all mortgage applications, up from 57.4% the previous week.
More buyers are also exploring alternatives to traditional 30-year fixed-rate mortgages. Adjustable-rate mortgages (ARMs), which typically offer lower initial interest rates, accounted for 8.2% of all mortgage applications last week, as reported by the MBA.
Financial analysts will be closely monitoring whether this psychological threshold of sub-6% rates can maintain enough momentum to meaningfully reverse the housing market’s prolonged cooling trend, particularly as the traditionally active spring and summer seasons approach.
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6 Comments
This is welcome news for prospective homebuyers. A dip below 6% for long-term mortgage rates could help revive the stagnant housing market. It will be interesting to see if this trend continues and how it impacts spring home-buying activity.
The drop in mortgage rates is an encouraging sign, but a lot will depend on broader economic conditions and the Federal Reserve’s policy moves. Homebuyers will likely remain cautious until there’s more stability in the market.
That’s a fair point. The Fed’s actions will be crucial in determining the trajectory of mortgage rates going forward.
Falling mortgage rates could be a boon for the mining and metals sectors, as increased home construction and renovations often drive demand for commodities like copper, lumber, and other building materials.
I’m curious to see how this will impact the demand for lithium and other critical minerals used in the growing clean energy and electric vehicle industries. Lower mortgage costs may free up more consumer spending in those areas.
This is an interesting development, but I wonder if it’s enough to significantly boost the housing market. Affordability remains a major concern, and economic uncertainty could still keep many potential buyers on the sidelines.