The average long-term mortgage rate in the United States has dropped to its lowest level in over three years. This week, the benchmark 30-year fixed mortgage rate fell to 6.06%, down from 6.16% the previous week, according to data from Freddie Mac. A year ago, the rate stood considerably higher at an average of 7.04%. The last time such a low rate was recorded was on September 15, 2022, when it was at 6.02%.
In addition, the borrowing costs for 15-year fixed-rate mortgages—commonly chosen by homeowners looking to refinance—also decreased, dropping to 5.38% from 5.46% last week. This figure was significantly higher at 6.27% a year ago.
Lower mortgage rates present an opportunity for homebuyers, increasing their purchasing power during a time when the housing market is in a significant slump. Following years of rising prices and elevated mortgage rates that have restricted access for many potential homeowners, this change offers a glimmer of hope.
Economic uncertainty and concerns over the job market continue to keep some prospective buyers hesitant. Mortgage rates began their decline in July, with expectations of a series of interest rate cuts by the Federal Reserve, starting in September and continuing into October. While the Fed does not directly set mortgage rates, these cuts can signal lower inflation or slower economic growth, motivating investors to purchase U.S. government bonds. This influx can decrease yields on long-term U.S. Treasurys, subsequently leading to lower mortgage rates.
The recent dip in mortgage rates has stimulated a modest increase in sales of previously occupied U.S. homes, marking a rise for four consecutive months. However, overall home sales remain at a 30-year low, extending the housing downturn into its fourth year. For buyers who can afford current rates, there is good news: the median monthly housing payment fell to $2,413 in the four weeks ending January 11, representing a 5.5% decline from the same period last year, and nearing the lowest level in the past two years.
This decrease in rates follows President Donald Trump’s announcement of the federal government’s plan to purchase $200 billion in mortgage bonds to further lower mortgage costs. This move has already led to a significant increase in homeowners looking to refinance, with applications soaring 40% last week from the previous week and comprising 60% of all loan applications, as per the Mortgage Bankers Association. Applications for new home purchases also saw a 16% rise.
The MBA’s CEO, Bob Broeksmit, noted that with mortgage rates easing closer to 6%, there is an anticipated surge of interest from homeowners seeking refinancing and potential buyers looking to enter the market. Economists anticipate further decreases in mortgage rates this year; however, projections indicate that the average rate for a 30-year mortgage will remain above 6%, about double the rate from six years ago.
Despite the encouraging trends, many homeowners who secured loans when rates reached their lowest may be hesitant to refinance at higher rates. Currently, approximately 69% of U.S. homes with outstanding mortgages have fixed rates of 5% or lower, and slightly more than half are at or below 4%, according to Realtor.com. This suggests that while the market is showing signs of improvement, many homeowners remain locked into favorable rates.