The United States experienced a significant drop in mortgage rates, with the average 30-year fixed-rate mortgage falling to 6.47%. This marks the lowest level in 15 months and the biggest one-week decline of the year. The decrease in mortgage rates comes as a relief for both prospective home buyers and sellers in a challenging real estate market.
The average rate on 30-year mortgages, which is the most popular home loan in the U.S., has been steadily decreasing since April when it rose above 7%. This reduction in rates has provided relief not only for buyers but also for potential sellers who may have felt locked into lower rates on their existing loans, causing them to keep their houses off the market.
According to Freddie Mac, the rate on 30-year fixed-rate mortgages dropped from 6.73% to 6.47% this week, marking the largest decline seen this year. This decrease in mortgage rates has the potential to increase prospective home buyers’ purchasing power and spark their interest in entering the housing market. Additionally, existing homeowners may also benefit from the lower rates by being able to refinance their current mortgages.
The share of mortgage applications in the market that reflect refinancing hit a two-year high, indicating that more homeowners are taking advantage of the lower rates to refinance their loans. This trend is expected to continue as the Federal Reserve is anticipated to start lowering interest rates in September after maintaining them at 5.3% for the past year. Investors are increasingly expecting the initial rate cut to be half a percentage point.
While the Fed’s benchmark rate and mortgage rates are not directly correlated, a rate cut by the Federal Reserve could indirectly put further downward pressure on mortgage rates. The recent drop in the 10-year U.S. Treasury yield, which influences borrowing costs, was triggered by a weaker-than-expected jobs report, contributing to the movement in mortgage rates.
Despite the drop in mortgage rates, sales of existing homes saw a decline of 5.4% in June compared to the previous year, according to the National Association of Realtors. This indicates continued sluggishness in the housing market, with homes staying on the market longer and sellers receiving fewer offers. However, the lower mortgage rates could encourage some homeowners to enter the market, potentially boosting activity.
Julia Fonseca, an assistant professor of finance at the University of Illinois at Urbana-Champaign, noted that as of March, nearly 60% of mortgage holders had rates of 4% or less, which is still significantly lower than the current borrowing costs. While the drop in mortgage rates is a positive development, Fonseca emphasized that there is still room for further reduction in borrowing costs to make a significant impact on homeowners.
In conclusion, the significant drop in mortgage rates to a 15-month low of 6.47% is a positive development for the housing market in the United States. Prospective home buyers and sellers stand to benefit from the lower rates, with increased purchasing power and refinancing opportunities. As the Federal Reserve is expected to lower interest rates in the coming months, there is potential for further reductions in mortgage rates, which could stimulate activity in the real estate market.
