Long-term U.S. Mortgage Rates Decline Amid Decreasing Treasury Yields

The average long-term mortgage rate in the U.S. fell this week, influenced by a drop in Treasury yields following an agreement to end the war with Iran. According to Freddie Mac, the 30-year fixed rate mortgage decreased to 6.47%, down from 6.52% last week. Last year, the rate was at 6.81%.

The rate for 15-year fixed-rate mortgages, commonly chosen by those refinancing, also declined. It dropped to 5.81% from last week’s 5.84%. One year ago, it was recorded at 5.96%.

Mortgage rates are affected by several factors, including Federal Reserve policy, and market expectations on the economy and inflation. These rates typically follow the 10-year Treasury yield, a key guide for lenders when pricing home loans. Despite inflation still being above the Federal Reserve’s 2% target, the benchmark interest rate remained unchanged this Wednesday. This decision followed the first meeting under new Fed Chair Kevin Warsh, who succeeded Jerome Powell.

Some Federal Reserve officials have expressed a willingness to consider at least one interest rate increase this year. Rates had been trending upward since the U.S.-Iran conflict began in February, impacting global crude oil flow and prices, thereby contributing to inflation and higher bond yields.

The tentative U.S.-Iran agreement announced this week, which allows Iran to sell oil freely through the Strait of Hormuz, has led to the 10-year Treasury yield dropping to 4.44% from last week’s 4.53%. It was at 3.97% before the conflict started. In February, the 30-year mortgage rate briefly dipped below 6%, a first since late 2022, but hasn’t fallen below that since, peaking at 6.53% two weeks ago.

Despite the decline and current rates being lower than last year, uncertainty about future rate hikes has kept potential buyers cautious. Home sales in the first quarter of the year were lower compared to the previous year, continuing a trend that began in 2022. April saw flat sales, but they accelerated in May, reaching a pace not seen since December.

The annual pace of existing home sales remains around 4 million, below the historical average of 5.2 million. Although recent surveys by the Mortgage Bankers Association showed a decrease in mortgage applications, they had increased 10.8% the previous week. Moreover, pending home sales rose last month, showing promise for the housing market as it enters the latter half of the year following a slow start in spring.