US mortgage rates edge lower but remain above year-ago levels

Mortgage rates dipped slightly this week for the first time since late August, providing some relief to potential homebuyers grappling with higher borrowing costs. The 30-year fixed-rate mortgage declined to 7.32 percent from 7.4 percent last week, according to Freddie Mac. This marks a notable drop from the 6.19 percent average a year ago.

Similarly, 15-year fixed-rate mortgages, typically chosen by borrowers refinancing their home loans, saw a reduction in borrowing costs. The average rate fell to 6.68 percent from 6.71 percent last week, a decline from the 5.44 percent average a year ago. Mortgage loan rates are influenced by a variety of factors, including inflation, Federal Reserve policies, and bond market investors' expectations for the economy.

These rates closely mirror the 10-year Treasury yield, which lenders use to determine the pricing for home loans. Mortgage rates have steadily risen since late February, coinciding with the onset of the US war with Iran, which has increased oil prices and fueled inflation. The escalation in rates is also due to heightened volatility in the bond market, leading to higher yields on US Treasurys.

The 10-year Treasury yield has been gradually easing in recent weeks following its peak at its highest level since 2002. Consequently, the average rate on a 30-year mortgage has remained steady at 7.4 percent, its highest level in almost three years. The yield was at 5 percent midday on Thursday, having soared to over 5.3 percent earlier this month and remaining significantly above its 3.97 percent level prior to the Iran war.

Despite the current dip, rising mortgage rates have contributed to stalled US home sales this year. The primary reason is that higher rates can increase monthly costs for borrowers by hundreds of dollars, reducing purchasing power and causing many to postpone buying a home. In February, the 30-year mortgage rate briefly bottomed at 5.98 percent, its lowest point since late 2022.

The rise in rates since then has added approximately $355 to the monthly payment for a borrower financing a $400,000 home loan, based on the latest average rate. The US housing market has been in a downturn since 2022, with pandemic-era low rates no longer supporting sales. Currently, home sales of previously occupied US homes are essentially flat, marking a 30-year low.

Fannie Mae forecasts that the 30-year mortgage rate will average 7.4 percent in the last quarter of this year and 7.5 percent in 2027.