What’s the Average Mortgage Rate in the US Right Now?
Long-term mortgage rates fell to 6.81% from 6.84% last week, according to data from mortgage lender Freddie Mac on Wednesday. A year ago, the average rate was 6.87%.
The Federal Reserve does not directly set mortgage rates, but every decision it makes reverberates through the credit market.
The federal funds rate influences short-term borrowing costs, which in turn affects the 10-year Treasury yield, which serves as the anchor for mortgage rates. When the Fed remains cautious and the market senses uncertainty, lenders raise rates to hedge their risk. This leaves homebuyers like Sarah as the ones who ultimately foot the bill.
Borrowing costs for 15-year fixed-rate mortgages, popular among refinancing homeowners, have also fallen. According to Freddie Mac, the average rate fell to 5.96% from 5.97% last week and 6.13% a year ago.
Mortgage rates are influenced by a variety of factors, ranging from the Federal Reserve's interest rate decisions to bond market investors' expectations for the economy and inflation. A key indicator is the 10-year U.S. Treasury yield, which lenders use as a guide for mortgage pricing.
Low Inventory, High Prices
Industry insiders believe that homeowners' decision not to sell their homes has reduced supply and driven up prices.
According to data, over a third (35%) of homes sold in July were sold for above their original asking price. With more offers, buyers faced a competitive bidding war to secure their desired home.
While overall sales are declining, the impact has been felt disproportionately across different home tiers. Available inventory for homes priced between $250,000 and $500,000 is down 15.5% from a year ago, while homes priced between $750,000 and $1 million are down 11%. Homes priced over $1 million are down only 7%. This suggests that available inventory is smaller in the lower-priced segments.
Housing affordability is worsening. Robert Frick, an economist at Navy Federal Credit Union, said that despite weak July sales data, the poor sales situation is likely to get worse as mortgage rates continue to rise in August, with little sign of a change in the short term.
Currently rising mortgage rates are a result of rising bond yields driven by a strong economy and are expected to remain elevated for several months as investors wait to see whether the Federal Reserve will continue raising interest rates at its three remaining meetings this year. The question is whether they will rise all the way to 8% or retreat.
As long as interest rates remain high, inventory will remain low and prices will remain high, making affordability a challenge for most homebuyers.