Mortgage Rates Take a Breather, Sliding Below 7%
After six weeks of steady increases, mortgage rates finally took a step back, dipping below the 7% mark. According to Freddie Mac, the average 30-year fixed-rate mortgage rate now stands at 6.96%, down from 7.04% the previous week. The 15-year mortgage rate also saw a decline, falling to 6.16% from 6.27%.
A Welcome Reprieve for Homebuyers
This downward shift is a welcome development for potential homebuyers, who have been facing significant affordability challenges. As Sam Khater, Freddie Mac’s chief economist, noted, “This is welcome news for potential homebuyers, as reflected in a corresponding uptick in purchase applications.” Indeed, applications for new home purchases rose 1% through Friday compared to a week earlier.
Rates Still Near Historic Highs
Despite this brief respite, mortgage rates remain near their highest level since mid-2024. The Mortgage Bankers Association’s Chief Economist Mike Fratantoni cautioned that rates around 7% are “a key psychological level, which likely continues to slow the pace of activity for both refinances and purchases.” Furthermore, tariffs on imported goods from China, Mexico, and Canada are still likely to be implemented, which could drive rates back up.
Economic Uncertainty Lingers
The recent drop in mortgage rates can be attributed to a decrease in ten-year Treasury yields, which closely track mortgage rates. This decline was driven by a decrease in financial market anxiety regarding President Trump’s economic policies and their potential impact on inflation. However, uncertainty still surrounds the president’s agenda, and its effects on the economy remain to be seen.
Forecast: Elevated Rates Ahead
In a new forecast released on Wednesday, Fannie Mae predicts that mortgage rates will remain relatively elevated, ending the year at 6.5%, up from 6.2%. This will likely keep existing home sales at or near a 30-year low for a third straight year, according to Mark Palim, senior vice president and chief economist at Fannie Mae.
The “Lock-in Effect” Persists
Buyers continue to face ongoing affordability challenges, while many would-be sellers are opting to hold onto low mortgage rates instead of listing their homes. This phenomenon, known as the “lock-in effect,” is expected to persist, limiting market activity. As Palim noted, “The lock-in effect is likely to be a little more persistent than we had previously thought.”
Leave a Reply