The average interest rate on a 30-year mortgage in the US fell this week, although it is still around 7%, after mostly rising in recent weeks.
Interest rates fell to 6.81% from 6.84% last week, mortgage buyer Freddie Mac said on Wednesday. That is still lower than a year ago, when interest rates averaged 7.22%.
Borrowing costs for 15-year fixed-rate mortgages, popular with homeowners looking to refinance their home loans at a lower interest rate, rose this week. The average interest rate rose from 6.02% last week to 6.1%. A year ago, this averaged 6.56%, Freddie Mac said.
Mortgage rates are influenced by several factors, including the yield on 10-year U.S. Treasury bonds, which lenders use as a guide to pricing home loans. Interest rates, which largely hovered around 4.4% last week and were below 3.70% in September, have eased this week. On Wednesday afternoon it stood at 4.23%.
Higher mortgage rates and rising home prices have put homeownership out of reach for many potential homebuyers. US home sales are on track for their worst year since 1995.
“30-year mortgage rates fell this week, but not by much,” said Sam Khater, Freddie Mac’s chief economist. “Potential home buyers are also waiting on the sidelines, causing demand to be moderate. Despite low sales activity, inventory has improved only modestly and dramatic undersupply remains.”
Mortgage rates fell to just above 6% in September after the Federal Reserve decided to cut its key interest rate for the first time in more than four years. Although the central bank does not set mortgage rates, its actions and the trajectory of inflation influence movements in 10-year Treasury yields. The central bank’s policy pivot is expected to eventually pave the way for a general decline in mortgage rates. But that could change if the next government’s policies send inflation into overdrive again.
The drop in mortgage rates in September spurred a rebound in sales of previously occupied U.S. homes last month and also likely boosted demand early last month.
The National Association of Realtor’s pending home sales index rose 2% in October from the previous month, the third straight monthly increase, the trade group said Wednesday. Pending transactions increased by 5.4% compared to October last year.
There is usually a delay of a month or two between the time a contract is signed and the time the home sale is completed, making current home sales a bellwether for future completed home sales.
But because mortgage rates have largely continued to rise in recent weeks, it could dampen sales this month and next in what is already a normal season for the housing market.
