LOS ANGELES – Mortgage rates eased again this week, though the latest pullback leaves the average rate on a 30-year home loan at close to 7%, where it's been much of this year.
The rate fell to 6.95% from 6.99% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.69%.
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Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also eased this week, lowering the average rate to 6.17% from 6.29% last week. A year ago, it averaged 6.10%, Freddie Mac said.
“Mortgage rates continued to fall back this week as incoming data suggests the economy is cooling to a more sustainable level of growth,” said Sam Khater, Freddie Mac’s chief economist.
Home loan rates are influenced by several factors, including how the bond market reacts to the Federal Reserve’s interest rate policy and the moves in the 10-year Treasury yield, which lenders use as a guide to pricing home loans.
Yields have eased recently following some economic data showing slower growth. On Thursday, a report showed inflation at the wholesale level fell from April into May. That followed a surprisingly encouraging update on inflation at the consumer level a day earlier.
Signs that the economy is cooling can drive inflation lower, which could persuade the Fed to lower its short-term interest rate from its highest level in more than two decades.
Federal Reserve officials said Wednesday that inflation has fallen further toward their target level of 2% in recent months but signaled that they expect to cut their benchmark interest rate just once this year. That's down from their previous projection of three cuts.
Until the Fed begins lowering its short-term rate, long-term mortgage rates are unlikely to ease significantly, economists say.
The average rate on a 30-year mortgage remains near a two-decade high, adding hundreds of dollars a month in costs on a home loan, limiting homebuyers’ purchasing options.
Elevated mortgage rates dampened home sales this spring homebuying season. Sales of previously occupied U.S. homes fell in March and April as home shoppers contended with rising borrowing costs and prices.
The recent pullback in mortgage rates has spurred a pickup in home loan applications, which jumped nearly 16% last week from a week earlier, according to the Mortgage Bankers Association.
“A further decline in mortgage rates, coupled with reports of rising inventory levels in markets across the country, is good news for prospective homebuyers this summer,” said MBA CEO Bob Broeksmit.