US 30-Year Fixed-Rate Mortgage Drops to 6.09% – Reuters

By Lucia Mutikani

WASHINGTON – U.S. mortgage rates have fallen to their lowest level in over a year and a half, with the potential for further decreases following the Federal Reserve’s recent interest rate cut, marking its first reduction since 2020.

According to Freddie Mac, the average rate on the 30-year fixed-rate mortgage decreased to 6.09%, down from 6.20% the previous week and the lowest level since February 2023. This rate was significantly higher at 7.19% a year ago.

Similarly, the average rate for a 15-year fixed-rate mortgage also dropped to 5.15%, the lowest since February 2023, down from 5.27% last week. In comparison, the average for this rate was 6.54% during the same time last year.

On Wednesday, the Federal Reserve lowered its benchmark overnight interest rate by 50 basis points, bringing it to a range of 4.75% to 5.00%.

While lower borrowing costs may not greatly impact the housing market this year, decreasing mortgage rates might encourage more homeowners to list their properties. Many homeowners are currently locked in with rates below 4%, which has restricted the supply of existing homes for sale. With reduced borrowing costs, demand may surge beyond supply, leading to sustained high house prices.

Fannie Mae recently projected that existing home sales this year would be the lowest since 1995, attributing this to ongoing affordability challenges.

Fed Chair Jerome Powell stated that a significant issue facing the housing market is the lack of adequate housing supply. He noted that this is not a problem the Fed can resolve but anticipates that normalization of rates will help stabilize the housing market.

However, Fitch Ratings forecasts that the 30-year fixed-rate mortgage is unlikely to fall below 5.0% before 2027.

Olu Sonola, head of U.S. economic research at Fitch Ratings, explained that the recent mortgage rate adjustments have largely accounted for the Fed’s substantial half-percentage-point cut. The 30-year mortgage rate is closely aligned with the 10-year Treasury note.

Sonola stated, "Even with further cuts, achieving a 30-year mortgage rate around 5.0% is dependent on the spread over 10-year Treasuries returning to the 10-year pre-pandemic average of 1.8 percentage points." He added that the 10-year yield has limited room for further decline following the summer’s anticipated monetary policy adjustments.