US 30-Year Fixed-Rate Mortgage Drops to 6.94%, First Time Below 7% Since April

Key Takeaway

• The US 30-year fixed-rate mortgage dropped to 6.94%, the first time below 7% since early April, potentially boosting the housing market.
• This week's rate is down from last week's 7.02% but higher than last year's 6.57%.
• April saw declines in existing and new home sales, single-family housing starts, and building permits after a strong Q1 performance.

Mortgage Rates Dip Below 7%

For the first time in over a month, the average rate on the popular U.S. 30-year mortgage has fallen below 7%, offering a glimmer of hope for the beleaguered housing market. According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.94% during the week ending May 23, down from 7.02% the previous week. This marks the third consecutive week of declining rates, a trend that could potentially revive the housing market's waning fortunes. A year ago, the rate stood at 6.57%, highlighting the significant fluctuations in the mortgage landscape over the past year.

Impact on the Housing Market

The recent dip in mortgage rates comes at a crucial time for the housing market, which has shown signs of cooling off after a strong first quarter. Data from April revealed declines in existing and new home sales, as well as drops in single-family housing starts and building permits. The easing of mortgage rates, coupled with an increase in the inventory of homes for sale, may provide some relief to prospective buyers. "Greater supply coupled with the recent downward trend in rates is an encouraging sign for the housing market," said Sam Khater, Freddie Mac’s chief economist.

Broader Economic Context

The fluctuations in mortgage rates are closely tied to the Federal Reserve's interest rate policies and movements in the 10-year Treasury yield, which lenders use as a benchmark for pricing home loans. Earlier this month, Federal Reserve Chair Jerome Powell indicated that the central bank is closer to cutting its main interest rate than hiking it, a sentiment that has contributed to the easing of Treasury yields. However, the Fed has maintained that it will not cut interest rates until there is consistent evidence that inflation is on track to return to its 2% target. "For rates to fall further below 7%, there must be consistent evidence that inflation is on track to return to 2%," noted Jiayi Xu, a Realtor.com economist.

Market Reactions and Future Outlook

The recent decline in mortgage rates has already spurred a modest increase in home loan applications, which rose by 1.9% last week, according to the Mortgage Bankers Association (MBA). "May has been a better month for the mortgage market, with the last three weeks showing declining mortgage rates and increasing applications," said MBA CEO Bob Broeksmit. Despite the positive trend, the average rate remains well above where it was two years ago, at 5.25%. The market typically sees heightened activity during the warmer months, and the current rates could provide a much-needed boost to home sales.