US prime mortgage rate falls to lowest level since March, Freddie Mac reports, why and how does it affect you?

The average interest rate on the popular 30-year fixed-rate mortgage has recently dropped to 6.77%, the lowest level since mid-March 2024, according to Freddie Mac. This decline marks a decrease from 6.89% the previous week and is a continuation of a trend that has seen rates hover around the same period from last year.

A key driver is the decrease in the yield of the 10-year Treasury note, which is closely linked to mortgage pricing. The yield fell due to signs of cooling inflation and expectations that the Federal Reserve may cut interest rates at some point this year. The Fed has maintained high rates to combat inflation, but the recent economic data suggests there could be reduction at some point this year.

However, demand remains cautious, with purchase applications still about 5% below spring levels. Freddie Mac’s chief economist, Sam Khater, noted that buyers are hesitant, often waiting for rates to drop further before committing to a purchase.

What this means for buyers

The decline in mortgage rates is a positive development for prospective homebuyers, as lower borrowing costs make home purchases more affordable. However, many potential buyers are still facing challenges, including high home prices and limited inventory.

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The housing market has been under pressure, with existing home sales reaching their lowest levels since 1995 due to the previous high interest rates that discouraged both buyers and sellers.

While the slight drop in rates could encourage buyers, many economists caution that the overall market dynamics remain complex. Home prices are still elevated, and many homeowners are reluctant to sell their properties, as doing so would likely involve taking on a new mortgage at a higher rate than their current one.