Mortgage Rates Ease, But Remain a Hurdle for Homebuyers
As the spring homebuying season approaches, prospective buyers are still facing significant challenges. Despite a slight decrease, the average 30-year mortgage rate in the US remains just shy of 7%, offering little relief to those looking to enter the market.
Rates Fall, But Still Higher Than Last Year
According to mortgage buyer Freddie Mac, the 30-year mortgage rate dropped to 6.95% from 6.96% last week. While this may seem like a positive trend, it’s essential to note that rates are still higher than they were a year ago, when they averaged 6.63%.
15-Year Fixed-Rate Mortgages Also See a Decrease
Homeowners seeking to refinance their loans to a lower rate may find some solace in the easing of 15-year fixed-rate mortgages. The average rate fell to 6.12% from 6.16% last week, although it’s still higher than the 5.94% average seen a year ago.
What’s Driving Mortgage Rates?
Mortgage rates are influenced by a complex array of factors, including the Federal Reserve’s interest rate policy decisions and the bond market’s reaction to them. The 10-year Treasury yield, which serves as a guide for pricing home loans, has been on the rise, echoing the increase in mortgage rates.
A Perfect Storm of Factors
The 10-year Treasury yield, which was at 3.62% in mid-September, reached 4.79% two weeks ago amid concerns that inflation may remain higher than the Fed’s 2% target. A strong US economy and worries about tariffs and other policies have also contributed to the upward trend in bond yields. As of midday trading Thursday, the 10-year Treasury yield stood at 4.53%.
The Impact on Home Sales
Elevated mortgage rates have added hundreds of dollars to monthly costs for borrowers, discouraging many from entering the market. This has prolonged a national home sales slump that began in 2022. While sales of previously occupied US homes rose in December for the third month in a row, 2024 was the worst year for home sales in nearly 30 years.
Affordability Remains a Significant Hurdle
“Driven by these higher rates and a persistent supply shortage, affordability hurdles still exist for many homebuyers, and a significant number of them remain on the sidelines,” said Sam Khater, Freddie Mac’s chief economist. As the spring homebuying season approaches, it remains to be seen how these factors will continue to shape the market.
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