Mortgage rates tumbled this week to the lowest level since early last year, according to data released Thursday, as some Americans begin to enjoy the early fruits of an upcoming pivot from the Federal Reserve, though prospective homeowners still face significantly higher borrowing costs than they faced prior to the COVID-19 pandemic.
Mortgage rates are slipping but remain much higher than they were before the pandemic.
The average 30-year fixed mortgage rate was 6.2% for the week ending Wednesday, reported the federal government-backed Freddie Mac.
That’s the lowest reading since the week ending Feb. 9, 2023, falling some 1.6 percentage points from the 23-year high 30-year rate of nearly 8% touched last fall.
“Rates continue to soften due to incoming economic data that is more sedate,” Freddie Mac’s chief economist Sam Khater explained in a statement accompanying the release.
The drop in mortgage rates comes as expectations shift for monetary policy, as the Fed is widely forecasted next week to cut the target federal funds rate for the first time since March 2020, setting off a positive feedback loop for borrowers, as the U.S. central bank heavily influences loans across the board.
Despite the relief, it’s still far pricier to take out a mortgage than it was before the COVID-19 pandemic upended the housing market; the 30-year fixed rate was never above 6% from 2009 to 2021 and wasn’t above 4% from May 2019 to March 2022.
Mortgage rates are closely correlated to movements in yields for 10-year U.S. Treasury bonds, which in turn are heavily influenced by the market’s anticipation of the medium-term direction of the federal funds rate. Yields for 10-year Treasury notes touched their lowest level since June 2023 this week, hovering between 3.6% and 3.7%, a far cry from the 5% threshold it hovered at last fall, when mortgage rates peaked. Mortgage rates skyrocketed in recent years as the Fed raised rates from 0% to 0.25% to 5.25% to 5.5% to combat inflation, while steadily declining inflation throughout 2024 has been the driver of lighter policy expectations. Traders betting on the direction of the federal funds rate price in a target range of 4.25% to 4.5% as the most likely scenario by year’s end and 2.75% to 3% as the most likely range by the end of 2025, according to CME Group data, indicating there may be further relief on deck for mortgage seekers.