The average interest rate for a 30-year fixed mortgage in the United States has risen to 6.55%, its highest point in almost a year, according to data released by Freddie Mac on Thursday. This increase in borrowing costs is creating new affordability challenges for prospective homebuyers.
Last week, the average rate stood at 6.49%. For comparison, the average rate was 6.75% a year ago. The current rate of 6.55% is the highest seen since August 28 of the previous year, when it was recorded at 6.56%. In late February, the average rate had dipped slightly below 6% for the first time since late 2022.
Rates on 15-year fixed-rate mortgages also saw an increase this week, rising to an average of 5.93% from 5.82% the previous week. A year ago, the average rate for a 15-year mortgage was 5.92%.
Mortgage rates are influenced by various factors, including the Federal Reserve's monetary policy and investor expectations regarding the economy and inflation. They typically follow the trend of the 10-year Treasury yield, which serves as a benchmark for lenders pricing home loans. The 10-year Treasury yield was 4.57% on Thursday, up from 4.54% a week prior and significantly higher than the 3.97% recorded in late February.
The increase in rates can add hundreds of dollars to monthly payments for borrowers, thereby reducing their purchasing power. This comes at a time when many aspiring homeowners are already struggling with affordability.
Recent economic data, including a report indicating a cooling in consumer prices for goods like gas and clothing last month, could potentially ease pressure on the Federal Reserve. However, experts note that until mortgage rates begin to decline, buyers will continue to face the impact of high borrowing costs.
The upward trend in mortgage rates has contributed to a slowdown in home sales this year. Pending U.S. home sales, a measure of homes under contract to be sold, fell 5.4% in June compared to the previous month and were down 0.3% from June of the prior year, according to the National Association of Realtors. Pending home sales are considered a near-term indicator of the housing market's activity, as there is typically a one-to-two-month lag between contract signing and sale finalization.
Data on mortgage applications also suggest that the rising rate environment is causing some potential buyers to hesitate. Overall mortgage applications decreased by 2.7% last week from the week prior, driven largely by a 7% drop in applications to purchase a home, as reported by the Mortgage Bankers Association.