US mortgage rates drop sharply, with 30-year average at 6.47%
Steadily easing rate is a relief for both buyers and potential sellers who have kept their houses off the market
MORTGAGE rates have fallen to their lowest level in more than a year, a balm for prospective homebuyers and sellers in a challenging real estate market.
The average rate on 30-year mortgages, the most popular home loan in the United States, dropped to 6.47 per cent this week, Freddie Mac reported on Thursday (Aug 8). That rate has been steadily easing since April, when it rose above 7 per cent – a relief for not only buyers, but also potential sellers who have felt locked into lower rates on their existing loans and have kept their houses off the market.
The decline, from 6.73 per cent a week earlier, was the biggest this year.
Mortgage rates stood around 3 per cent in late 2021. They began climbing when the Federal Reserve started raising its benchmark rate to combat inflation, reaching levels not seen in two decades.
“The decline in mortgage rates does increase prospective homebuyers’ purchasing power and should begin to pique their interest in making a move,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
The drop in mortgage rates could also allow existing homeowners to refinance, Khater said. The share of market mortgage applications that reflect refinancing was the highest in more than two years, according to Freddie Mac.
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The Fed is expected to start lowering interest rates in September after holding them at 5.3 per cent for the past year. Investors increasingly anticipate that the initial cut will be half a percentage point.
While the Fed’s benchmark rate and mortgage rates aren’t directly connected, a Fed rate cut could indirectly put even more downward pressure on mortgages. The 10-year US Treasury yield, which underpins borrowing costs, dropped this week as panic ensued after a weaker-than-expected jobs report, contributing to the mortgage-rate movement.
Sales of existing homes slipped 5.4 per cent in June from a year earlier, according to the National Association of Realtors – a sign of continued sluggishness in the housing market. Homes sat on the market longer, and sellers received fewer offers.
The lower mortgage rate could encourage some homeowners to get into the market, said Julia Fonseca, an assistant professor of finance at the University of Illinois at Urbana-Champaign. But as at March, nearly 60 per cent of mortgage holders had rates of 4 per cent or less, she added, still far from the current cost of borrowing.
“It’s a step – but it’s a small step,” Fonseca said of the latest drop. “We’re moving in the direction of lowering borrowing costs and less lock-in, but we still have a ways to go if we consider how low these rates that people have locked in actually are.” NYTIMES
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