WASHINGTON — If you’ve been watching mortgage rates, there’s a bit of good news this week. The average rate on a 30-year fixed-rate home loan dropped to 6.47%, down from 6.52% the previous week, according to mortgage buyer Freddie Mac. That same rate stood at 6.81% just one year ago.
Shorter-term loans also saw some relief. The average rate on a 15-year fixed mortgage — a popular choice for homeowners looking to refinance — slipped to 5.81% from 5.84% last week. A year ago, that rate was at 5.96%.
The drop is being tied to falling U.S. Treasury yields, which eased after the United States and Iran reached a tentative deal to end their ongoing war. The yield on the 10-year Treasury note fell from 4.53% last week to 4.44% on Thursday. Before the conflict began in late February, that yield was just 3.97%.
Mortgage rates are shaped by a range of factors, including decisions by the Federal Reserve on interest rates and expectations among bond market investors about inflation and economic growth. Lenders typically use the 10-year Treasury yield as a guide when setting home loan prices.
The Fed held its benchmark interest rate steady on Wednesday, as inflation remains well above the central bank’s 2% target. It was the first meeting under new Fed Chair Kevin Warsh, who took over from Jerome Powell after Powell’s eight-year tenure leading the central bank. Several Fed policymakers indicated they would be open to raising interest rates at least once this year.
Mortgage rates had been climbing steadily since the U.S.-Iran conflict erupted in late February, which disrupted the flow of crude oil through the Persian Gulf and pushed energy prices sharply higher. That, in turn, fueled inflation and drove bond yields — and mortgage rates — upward. Two weeks ago, the 30-year rate hit 6.53%, its highest point since August 28.
The tentative peace deal reached earlier this week would allow Iran to reopen the Strait of Hormuz and resume selling its oil on the global market, helping ease those pressures.
As recently as late February, the 30-year mortgage rate had briefly dipped below 6% for the first time since late 2022. It has not fallen back below that mark since.
While rates are still lower than they were at this point last year, the mostly upward trend and uncertainty about where rates are headed have discouraged many would-be buyers from entering the housing market.
Sales of previously owned U.S. homes fell during the first three months of the year compared to the same period a year ago, continuing a housing slowdown that began in 2022 when rates started rising from pandemic-era lows. Sales were essentially flat in April, then picked up speed in May, reaching their fastest pace since December.
Even so, existing home sales continue to hover near a 4-million annual pace — well below the historical norm of around 5.2 million per year.
Mortgage applications declined in the most recent survey from the Mortgage Bankers Association, though the week before saw a significant jump of 10.8%. Pending home sales also rose last month, offering a hopeful signal for the housing market as it heads into the second half of the year after a slow spring buying season.
