The average long-term U.S. mortgage rate decreased this week, mirroring a drop in Treasury yields. This follows a deal aimed at ending the conflict with Iran. Mortgage buyer Freddie Mac reported a drop in the 30-year fixed rate mortgage to 6.47% from 6.52% last week. A year ago, this rate was at 6.81%.
The 15-year fixed-rate mortgage, popular with those refinancing, also saw a decrease. It fell to 5.81% from 5.84% in the prior week. Last year, it stood at 5.96%, according to Freddie Mac.
Mortgage rates are influenced by various factors, including the Federal Reserve’s interest rate policies and bond market behaviors related to economic and inflation expectations. They usually follow the 10-year Treasury yield, which guides lenders on pricing home loans. Inflation remains above the Federal Reserve’s 2% target. The central bank decided to keep the benchmark interest rate steady during a meeting led by new Fed Chair Kevin Warsh, who succeeded Jerome Powell.
Several Fed policymakers are open to considering at least one interest rate increase this year. Rates have been rising since the dispute with Iran began in late February. This conflict has disrupted crude oil flows from the Persian Gulf, increasing oil prices, inflation, bond yields, and mortgage rates.
Earlier this week, however, a tentative agreement between the U.S. and Iran was reached. This allowed Iran to reopen the Strait of Hormuz and freely sell its oil, reducing the yield on the U.S. 10-year Treasury note to 4.44% from 4.53% last week. It was at 3.97% in late February before the conflict.
In late February, the average rate on a 30-year mortgage briefly went under 6% for the first time since 2022. It hasn’t fallen below that level since then. Two weeks prior, it reached 6.53%, the highest since August 28.
While long-term mortgage rates are currently lower than a year ago, their upward trend and uncertainty have kept many potential homebuyers hesitant. Sales of previously owned homes fell in the first quarter compared to last year, continuing a slump from 2022’s rising mortgage rates after pandemic-era lows. Sales stabilized in April but accelerated in May to the fastest pace since December.
Nonetheless, U.S. home sales still hover around a 4-million annual rate, below the historic norm of about 5.2 million. Mortgage applications declined in the most recent Mortgage Bankers Association survey but had increased 10.8% the previous week. Pending home sales rose last month, signaling potential improvement in the housing market as the year progresses.
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