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By Rachel Dobkin
Weekend Reporter
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The average rate on a 30-year mortgage slightly dropped this week after climbing for the past six weeks.
The rate dipped to 6.78 percent from 6.79 percent last week, mortgage buyer Freddie Mac said Thursday.
Mortgage rates on a 30-year home loan have fluctuated throughout the year, reaching a peak of 7.22 percent in May. In late September, the average rate dipped to 6.08 percent, the lowest level in two years, after the Federal Reserve cut interest rates. But mortgage rates have since crept higher until this week.
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Borrowing costs on 15-year fixed-rate mortgages also slipped by .01 percent this week to 5.99 percent from 6 percent last week.
Meanwhile, borrowing costs on 30-year and 15-year home loans are looking better than they did a year ago. The average rate on a 30-year mortgage was 7.4 percent this time last year and the average rate on a 15-year mortgage was 6.76 percent a year prior.
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Experts think mortgage rates will continue to fluctuate this year, but generally predict rates to stay around 6 percent in 2025.
High mortgage rates and high home prices have contributed to a sales slump in the U.S. housing market dating back to 2022.
U.S. Election Effects Treasury Bond Yields
One of the several factors that influence mortgage rates is the yield on U.S. 10-year Treasury bonds, which lenders use as a guide to price home loans. The higher the yields on long-term U.S. Treasuries, the more confidence investors have in the future of the economy. On the other hand, high long-term yields can also signal an expectation of rising inflation.
Bond yields have already been rising following encouraging reports on the economy, including inflation. But yields surged last week because of expectations that President-elect Donald Trump's economic plan based on higher tariffs, lower tax rates and light regulation could lead to bigger economic growth but also higher inflation and federal government debt.
At midday last Thursday, the yield on 10-year Treasury bonds was 4.36 percent. It increased to 4.41 percent as of midday today. The yield was at 3.62 percent as recently as mid-September.
The Fed Cuts Interest Rates Again
Mortgage rates are also influenced by the federal funds rate, which is the Federal Reserve's benchmark interest rate.
The Fed lowered its benchmark rate, which was at a 23-year high, by a half-percentage point to between 4.75 and 5 percent in September.
The federal funds rate was raised by the Fed 11 times in 2022 and 2023 to curb high inflation, which hit both the United States and countries around the world after the COVID-19 pandemic. September's interest rate cut was the first in four years.
Last Thursday, the Fed cut rates by a quarter-point, lowering rates to between 4.5 to 4.75 percent.
The federal funds rate is the target interest rate at which commercial banks borrow and lend their extra reserves to one another overnight. If the federal funds rate continues to decrease, the cost of consumer borrowing—including mortgages, auto loans and credit cards—should go down over time.
This article includes reporting from The Associated Press.
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