The Average U.S. Mortgage Rate Drops Below 7% to Boost Homebuyers

LOS ANGELES—The average long-term U.S. mortgage rate dropped below 7 percent to its lowest level since early August, another boost for prospective homebuyers who have largely been held back by sharply higher borrowing costs and heightened competition for relatively few homes for sale.

Decrease in Mortgage Rates

The average rate on a 30-year mortgage dropped to 6.95 percent from 7.03 percent last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.31 percent.

Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loan, edged up this week, lifting the average rate to 6.38 percent from 6.29 percent last week. A year ago, it averaged 5.54 percent, Freddie Mac said.

The latest drop in rates is the seventh in as many weeks. Mortgage rates have been easing since late October, when they reached 7.79 percent, the highest level since late 2000.

Factors Influencing Mortgage Rates

Investors’ expectations for future inflation, global demand for U.S. Treasurys, and what the Fed does with its benchmark federal funds rate can influence rates on home loans.

“Given inflation continues to decelerate and the Federal Reserve Board’s current expectations that they will lower the federal funds target rate next year, we likely will see a gradual thawing of the housing market in the new year,” said Sam Khater, Freddie Mac’s chief economist.

Impact on Homebuyers

The sharp run-up in mortgage rates that began early last year has pushed up borrowing costs on home loans, reducing how much would-be homebuyers can afford even as home prices have kept climbing due to a stubbornly low supply of properties on the market. That’s weighed on sales of previously occupied U.S. homes, which are down 20.2 percent through the first 10 months of this year.

The recent downward shift in mortgage rates is a welcome development for homebuyers. Mortgage applications notched their sixth consecutive weekly increase last week, according to the Mortgage Bankers Association.

Still, the average rate on a 30-year home loan remains sharply higher than just two years ago when it was 3.12 percent. The large gap between rates now and then is contributing to the low inventory of homes for sale by discouraging homeowners who locked in rock-bottom rates two years ago from selling.

By Alex Veiga