The average rate for long-term mortgages in the United States decreased to its lowest level since mid-May this week, reducing borrowing costs for potential homebuyers. The benchmark rate for 30-year fixed-rate mortgages dropped from 6.49% last week to 6.43%, according to the mortgage buyer Freddie Mac. A year ago, the average rate was 6.67%.
The average rate has been steady around 6.5% since mid-May. Generally, it has trended upwards in the months since the United States began its war with Iran in late February. This conflict has driven up oil prices, contributing to increased inflation, bond yields, and mortgage rates.
Currently, the average rate is at its lowest since May 14, when it was 6.36%. Credit costs for 15-year fixed-rate mortgages, often sought by borrowers refinancing mortgage loans, also fell this week. The average dropped from 5.84% last week to 5.79%. A year ago, it was at 5.8%, stated Freddie Mac.
Mortgage rates are influenced by several factors, from Federal Reserve decisions to bond market investors’ expectations regarding the economy and inflation. Typically, they follow the trend of the 10-year Treasury bond yield, which lenders use to set the price of home loans. The 10-year Treasury bond yield was at 4.46% at midday Thursday in the bond market, down from 4.48% late Wednesday.
Hope that the U.S. and Iran might finally end their war and reopen the Strait of Hormuz to oil tankers has helped lower oil prices, alleviating some pressure on bond yields. By the end of February, the average rate for a 30-year mortgage had dipped slightly below 6% for the first time since late 2022. Since then, it hasn’t fallen below that threshold. Five weeks ago, it peaked at 6.53%, the highest since August 28.
Although average long-term mortgage rates remain lower than at the same time last year, uncertainty about their path amid the war with Iran has kept many potential homebuyers on the sidelines. “Homebuyers and sellers are beginning to accept rates in the mid-6% range as the new normal,” stated Lisa Sturtevant, chief economist of Bright MLS. “However, affordability is a significant constraint on housing market activity, as rates remain high and home prices continue to rise.”