Mortgage rates in the United States have recently seen a sharp decline to their lowest level in over a year, potentially offering relief to home buyers and sellers.
The average contract rate on a 30-year mortgage loan, the most popular home loan option in the US, dropped to 6.47% this week, Freddie Mac reported on Thursday. That is the lowest level recorded in 15 months and is down 0.26% from last week's 6.73% rate. It is also the largest decline recorded this year.
Mortgage rates for 30-year loans have steadily fallen over the past weeks since it peaked at 7.22% in May this year.
In addition, the contract rate for the 15-year mortgage loan also dropped to 5.63% from the previous week's 5.99%. A year ago, it averaged 6.34%.
Why Have the Rates Fallen?
Mortgage rates began increasing after the Federal Reserve hiked its benchmark rates in an effort to combat high inflation. However, Fed Chair Jerome Powell last week teased potential rate cuts when the central bankers meet in September.
The Fed's benchmark rate does not directly affect mortgage rates. However, a rate cut could put downward pressure on mortgages and lead to movement.
In addition, mortgage rates have fallen after the 10-year US Treasury yield dropped following the government's latest job report showed that unemployment rose to 4.3% in July---the highest level recorded since October 2021.
"Mortgage rates plunged this week to their lowest level in over a year following the likely overreaction to a less than favorable employment report and financial market turbulence for an economy that remains on solid footing," Sam Khater, Freddie Mac's chief economist, said in the release.
How Do Buyers and Sellers Benefit From Lower Mortgage Rates?
The decline in mortgage rates could encourage homeowners to get back into the market, which could help resolve the lack of inventory of homes for sale. Additionally, the drop in rates could provide existing homeowners the opportunity to refinance.
The decline in mortgage rates could bring homebuyers who were priced out a few months ago to re-enter the market.
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