Long-term Mortgage Rates Dip to 6.94%, Third Consecutive Weekly Decline

Key Takeaway

• The average 30-year mortgage rate dipped to 6.94%, marking the third consecutive weekly decline and a boost for homebuyers.
• Borrowing costs on 15-year fixed-rate mortgages also fell to 6.24%, aiding homeowners looking to refinance.
• Lower rates have spurred a 1.9% increase in home loan applications, signaling renewed buyer interest amid easing borrowing costs.

Mortgage Rates Dip Below 7%

The average rate on a 30-year mortgage has dipped below 7% for the first time since mid-April, providing a modest boost for home shoppers in a market characterized by rising prices and limited inventory. According to Freddie Mac, the rate fell to 6.94% from 7.02% last week, marking the third consecutive week of declines. This recent trend follows a five-week period of increases that had pushed the average rate to its highest level since November 30. The reduction in mortgage rates is a welcome development for prospective homebuyers, as higher rates can significantly increase monthly costs and limit purchasing options.

Factors Influencing Mortgage Rates

Mortgage rates are influenced by several factors, including the Federal Reserve’s interest rate policy and movements in the 10-year Treasury yield, which lenders use as a benchmark for pricing home loans. Treasury yields have been easing since Federal Reserve Chair Jerome Powell indicated that the central bank is closer to cutting its main interest rate than hiking it. However, the Fed has maintained that it will not cut rates until it is confident that inflation is sustainably slowing to its 2% target. This cautious stance suggests that while mortgage rates may continue to inch lower, significant reductions are unlikely in the near term.

Impact on the Housing Market

The recent dip in mortgage rates has spurred a slight increase in home loan applications, which rose by 1.9% last week, according to the Mortgage Bankers Association (MBA). This uptick in applications is a positive sign for the housing market, which has been dampened by high prices and limited inventory. The spring and early summer months are traditionally the busiest time for home sales, but the rise in mortgage rates last month had put a damper on activity. The easing of rates, coupled with a slight increase in the inventory of homes for sale, may provide some relief to buyers and potentially boost sales in the coming months.

Broader Market Dynamics

The broader dynamics of the housing market are also influenced by the Federal Reserve's monetary policy and the overall economic environment. The Fed's timing on rate cuts will largely depend on economic performance and inflation trends. According to minutes released this week, policymakers agreed that interest rates needed to remain higher for longer, although many questioned whether current policy was restrictive enough to tame inflation. For mortgage rates to fall further below 7%, consistent evidence that inflation is on track to return to the Fed's 2% target is necessary.

Street Views

• Bob Broeksmit, MBA CEO (Cautiously Optimistic on the mortgage market):

  "May has been a better month for the mortgage market, with the last three weeks showing declining mortgage rates and increasing applications. Rates below 7% are good news for prospective buyers, and MBA expects them to continue to inch lower this summer."