The average rate on a 30-year mortgage in the U.S. rose to 6.12% this week, marking the first increase in seven weeks according to mortgage buyer Freddie Mac. This slight uptick follows a period of decline, with rates reaching their lowest level in two years last week. As a result, home shoppers have had more purchasing power in a housing market where prices are near all-time highs. Borrowing costs on 15-year fixed-rate mortgages have also increased this week, rising to 5.25% from 5.16% last week and 6.78% a year ago.
Mortgage rates are influenced by various factors, including the bond market’s reaction to Federal Reserve interest rate policy decisions. The trajectory of the 10-year Treasury yield, which lenders use as a guide for pricing home loans, can be affected by these decisions. Last week, the yield on the 10-year Treasury was at 3.82%, up from 3.78% the previous week. Despite this week’s rise in the average long-term rate, rates have been decreasing since July in anticipation of the Federal Reserve’s decision to cut its main interest rate for the first time in over four years.
Freddie Mac Chief Economist Sam Khater has painted an optimistic picture for prospective homebuyers, noting that mortgage rates have declined by one and a half percentage points over the past year. He also highlighted that home price growth is slowing, inventory is increasing, and incomes are rising. This improved backdrop for homebuyers is expected to continue through the rest of the year. However, the average rate on a 30-year mortgage soared from below 3% in September 2021 to a 23-year high of 7.8% last October, coinciding with the Fed’s decision to increase its benchmark interest rate to combat inflation.
When mortgage rates rise, they can significantly increase monthly costs for borrowers, potentially deterring many would-be homebuyers. The housing market has been in a sales slump since 2022 as elevated mortgage rates have made purchasing a home less feasible for some. August saw a decrease in sales of previously occupied U.S. homes despite easing mortgage rates. Economists predict that mortgage rates will likely remain near current levels for the rest of the year, with Fannie Mae projecting an average rate of 6.2% for a 30-year mortgage in the October-December quarter. However, they anticipate a decline to an average of 5.7% in the same quarter next year.
