Average U.S. Mortgage Rates Decline, Offering Relief to Homebuyers Amid Inventory Shortage

According to weekly data compiled by mortgage buyer Freddie Mac, the average long-term U.S. mortgage rate has once again dropped, offering a much-needed boost to homebuyers who have faced a challenging housing market characterized by limited inventory. The rate for a 30-year fixed mortgage decreased to 6.67% this week, down from 6.69% the previous week. Comparatively, a year ago, the average rate stood at 5.81%.

With this latest decline, the average rate for a 30-year mortgage has reached its lowest level since late May when it stood at 6.57%. Despite this positive trend, the current average rate remains significantly higher compared to the same period last year, as emphasized by Sam Khater, Freddie Mac’s chief economist.

Khater noted, “Mortgage rates slid down again this week but remain elevated compared to this time last year.” The current average rate on a 30-year home loan is more than double what it was two years ago, when historically low rates stimulated a surge in home sales and refinancing activity.

Homebuyers have been closely monitoring mortgage rates, awaiting an opportunity to enter the market. However, the persistently low inventory of existing homes remains a challenge. Khater expressed optimism regarding a recent rebound in single-family housing starts, a development that is expected to continue through the summer and help alleviate the inventory shortage.

In addition to the decline in 30-year mortgage rates, the average rate for a 15-year fixed mortgage also decreased, reaching 6.03% this week compared to 6.10% the previous week. A year ago, the average rate for a 15-year fixed-rate mortgage stood at 4.92%.

The higher mortgage rates observed today have contributed to the scarcity of available homes by dissuading homeowners who locked in lower borrowing costs two years ago from selling their properties. This lack of inventory has been identified as a key factor behind the recent decline in sales of previously occupied U.S. homes, as reported by the National Association of Realtors.

For much of the past decade, low mortgage rates played a significant role in fueling the housing market, facilitating borrowers’ ability to finance homes with ever-increasing prices. However, this trend began to reverse over a year ago when the Federal Reserve started raising its key short-term rate as a measure to cool down the economy and address inflation concerns.

The rates on home loans are influenced by global demand for U.S. Treasuries, which serves as a guide for lenders in pricing loans. Furthermore, investors’ expectations for future inflation and the Federal Reserve’s actions regarding interest rates also impact mortgage rates.

The recent decline in average mortgage rates brings some relief to prospective homebuyers who have been navigating a challenging housing market. While elevated rates continue to pose a hurdle, the hope is that favorable rates, coupled with encouraging developments in housing starts, will contribute to increased activity in the housing sector throughout the summer months.