LOS ANGELES — The average interest rate on a 30-year mortgage fell this week to just below 7% for the first time since mid-April, a modest boost for home buyers entering a housing market dampened by rising prices and relatively few available homes .
Interest rates fell to 6.94% from 7.02% last week, mortgage buyer Freddie Mac said Thursday. A year ago the average was 6.57%.
This is the third consecutive weekly decline in average interest rates. The recent pullback follows a five-week run of increases that pushed average rates to their highest level since Nov. 30. Higher mortgage rates can add hundreds of dollars per month in costs for borrowers, limiting homebuyers' purchasing options.
Borrowing costs for 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also fell this week, pushing the average interest rate down to 6.24% from 6.28% last week. A year ago, this averaged 5.97%, Freddie Mac said.
Mortgage rates are affected by several factors, including how the bond market responds to the Federal Reserve's interest rate policy and movements in 10-year Treasury yields, which lenders use to guide the pricing of home loans.
Treasury yields have largely fallen since Federal Reserve Chairman Jerome Powell said earlier this month that the central bank remains closer to cutting its key interest rate than raising it.
Still, the Fed maintains that it has no plans to cut rates until it has more confidence that price increases will slow sustainably to the 2% target.
Until then, mortgage rates are unlikely to fall significantly, economists say.
After rising to a 23-year high of 7.79% in October, the average rate on a 30-year mortgage remained below 7% this year until last month. Even with the recent declines, interest rates remain well above the level of two years ago, at 5.25%.
Last month's interest rate hike was an unwelcome development for potential home buyers, in the middle of what is traditionally the busiest time of year for home sales. On average, more than a third of all homes sold in a year are purchased between March and June.
Sales of previously occupied U.S. homes fell in March and April as homebuyers struggled with rising mortgage rates and prices.
This month's drop in mortgage rates has led to a rise in home loan applications, which rose 1.9% last week from a week earlier, according to the Mortgage Bankers Association.
“May was a better month for the mortgage market, with declining mortgage rates and increasing applications over the past three weeks,” said Bob Broeksmit, CEO of MBA. a step lower this summer.”
