Mortgage Rates Fall Below 6.5% for the First Time in More Than a Year

In a bit of welcome news for long-frustrated buyers and sellers of co-op and condo apartments, mortgage rates have fallen to their lowest level in more than a year, The New York Times reports.

The average rate on 30-year mortgages, the most popular home loan in the United States, dropped to 6.47% this week, Freddie Mac reported. That rate has been steadily easing since April, when it rose above 7% — a relief not only for buyers but also for potential sellers who have felt locked into lower rates on their existing loans and have kept their homes off the market.

The decline, from 6.73% a week earlier, was the biggest this year.

Mortgage rates stood at around 3% in late 2021. They began climbing when the Federal Reserve started raising its benchmark rate to combat inflation, reaching levels not seen in two decades.

“The decline in mortgage rates does increase prospective home buyers’ purchasing power and should begin to pique their interest in making a move,” Sam Khater, Freddie Mac’s chief economist, said in a statement.

The easing of mortgage rates has already begun to revive a practice that became widespread in the days of low interest rates — mortgage refinancing. The share of market mortgage applications that reflect refinancing was the highest in more than two years, according to Freddie Mac.

The Fed is expected to start lowering interest rates in September after holding them at 5.3% for the past year. Investors increasingly anticipate that the initial cut will be half a percentage point.

While the Fed’s benchmark rate and mortgage rates aren’t directly connected, a Fed rate cut could indirectly put even more downward pressure on mortgages.

The lower mortgage rate could encourage some homeowners to get into the market, says Julia Fonseca, an assistant professor of finance at the University of Illinois at Urbana-Champaign. But there are still compelling reasons for them to sit tight. As of March, nearly 60% of mortgage holders had rates of 4% or less, she adds, still far from the current cost of borrowing.

“It’s a step — but it’s a small step,” Fonseca says of the latest drop in mortgage rates. “We’re moving in the direction of lowering borrowing costs and less lock-in, but we still have a ways to go if we consider how low these rates that people have locked in actually are.”