Homebuyers received some welcome news this week as mortgage rates declined slightly after climbing steadily for more than a month to nearly seven-month highs.
Freddie Mac reported Thursday that 30-year fixed mortgage rates fell to 6.37% from the previous week’s 6.46%. The current rate remains below last year’s level of 6.62% for the same period.
The weekly decrease breaks a streak of five consecutive rate increases that had been adding hundreds of dollars to monthly payments for home shoppers and reducing their purchasing power.
Current rates have returned to approximately the same level they held two weeks earlier.
Borrowing costs for 15-year fixed mortgages, commonly chosen by homeowners seeking to refinance, also declined this week. These rates fell to 5.74% from 5.77% the previous week, compared to 5.82% one year ago, according to Freddie Mac.
Multiple factors drive mortgage rate changes, including Federal Reserve policy decisions and bond market investors’ economic and inflation forecasts.
Just six weeks earlier, 30-year mortgage rates had fallen below 6% for the first time since late 2022, creating optimism among buyers as spring home shopping season approached. However, conflict with Iran subsequently erupted, driving oil prices upward and raising inflation concerns.
These inflation expectations contributed to rising yields on 10-year U.S. Treasury bonds, which banks reference when setting home loan prices.
Thursday’s midday trading showed the 10-year Treasury yield at 4.28%, down slightly from 4.3% the previous week. The yield stood at just 3.97% in late February, before the Iranian conflict began.
Rising inflation could prevent the Fed from reducing interest rates. While the central bank doesn’t directly control mortgage rates, its short-term rate decisions significantly influence bond investors and ultimately impact 10-year Treasury yields.
The housing market has struggled since 2022, when mortgage rates started climbing from pandemic-era lows. Previously owned home sales remained essentially unchanged last year, stuck at three-decade lows, and have continued sluggishly this year with January and February showing year-over-year declines.
Despite current rates being slightly lower than a year ago, their recent upward movement has already reduced mortgage applications. Additional increases could further dampen home sales during the housing market’s traditionally busiest season.
