The benchmark 30-year fixed mortgage rate dropped to 6.48% from 6.53% the previous week, as reported by mortgage buyer Freddie Mac on Thursday. This average rate is still below last year’s level of 6.85%.
When mortgage rates decline, homebuyers gain more purchasing power.
Rates have generally been rising since the onset of the war with Iran, which has disrupted the transportation of crude oil from the Persian Gulf to global customers. This disruption has led to a significant increase in oil prices, a major contributor to inflation.
“This conflict is currently the primary driver of persistently high mortgage rates, as the oil shock spreads inflation concerns throughout the global economy,” explained Joel Berner, a senior economist at Realtor.com.
Mortgage rates are affected by various factors, including decisions on interest rate policy made by the Federal Reserve and bond market investors’ economic and inflation expectations. Typically, they align with the movement of the 10-year Treasury yield, which lenders reference when pricing home loans.
Fears of rising oil prices as the war continues have kept long-term bond yields high, resulting in a steady increase in mortgage rates.
The yield on the U.S. 10-year Treasury note was at 4.47% during midday trading on Thursday in the bond market, up from 4.45% a week earlier. It was only 3.97% in late February, prior to the outbreak of the war.
As recently as late February, the average rate for a 30-year mortgage had dipped below 6% for the first time since late 2022, but it has not returned to that level since then. Last week, it rose to its highest point since August 28, when it reached 6.56%.
While average long-term mortgage rates are still lower than they were last year, their overall upward trend and uncertainty about how much higher they might go due to the bond market’s response to the economic impact of the Middle Eastern conflict have hindered the housing market.
Sales of previously owned homes in the U.S. remained nearly unchanged in April after declining earlier this year, continuing a nationwide housing slump that began in 2022 when mortgage rates started to rise from their pandemic-era lows. The May existing home sales report is expected next week.
Recent mortgage application data also indicates that rising rates are keeping many potential homebuyers from moving forward.
Applications for mortgages, which include those for home purchases or refinancing existing loans, fell 2.5% last week, marking the third consecutive week of decline, according to the Mortgage Bankers Association. Applications for home purchase loans remain slightly above last year’s levels but are experiencing their slowest weekly pace since April.
Meanwhile, refinancing applications have eased as many homeowners looking to refinance are waiting for rates to drop further.
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Nevertheless, those homeowners found some relief this week. The rates for 15-year fixed-rate mortgages, commonly sought by those refinancing, also decreased. The average rate fell to 5.79% from 5.87% the week prior, compared to 5.99% a year ago, according to Freddie Mac.
Homebuyers undeterred by elevated mortgage rates are taking advantage of favorable trends in several markets, including an increase in available properties and indications that home listing prices have begun to decline.
The median price of homes listed for sale in the U.S. fell by 2.4% last month compared to a year earlier, marking the largest decrease since data tracking began in 2017, according to Realtor.com.
