Average long-term US mortgage rate eases to 6.81%, the third consecutive weekly decline

The average 30-year U.S. mortgage rate declined for the third consecutive week, falling to 6.81% from 6.84%, according to Freddie Mac; this offers slight relief to prospective homebuyers amid persistent concerns that elevated borrowing costs are suppressing the housing market, as sales of existing homes remain near 30-year lows and homebuilder sentiment reflects concerns about weakening demand.

Analysis

The U.S. 30-year average mortgage rate has experienced its third consecutive weekly decline, easing to 6.81% from 6.84% the previous week, and now sits slightly below the 6.87% average from a year ago. This downtrend, mirrored by a fall in the 15-year mortgage rate to 5.96% from 5.97%, is linked to a recent pullback in the 10-year Treasury yield, which decreased to 4.35% from 4.58% a few weeks prior. Despite this modest relief, rates remain elevated, having peaked just above 7% in mid-January this year and are currently back to mid-May levels, after briefly dipping to a yearly low of 6.62% in early April. The persistent elevation in borrowing costs continues to exert significant pressure on the U.S. housing market, contributing to a sales slump ongoing since 2022, with sales of previously occupied homes in 2023 reaching their lowest point in nearly three decades. Current market conditions reflect this strain, evidenced by a dampened spring homebuying season, fewer new housing starts than economists anticipated, and a notable decline in homebuilder sentiment to its third-lowest reading since 2012, underscoring widespread concern about chilled demand due to high rates and economic uncertainty.

Key Decisions for Investors

• Investors should closely monitor trends in the 10-year Treasury yield and Federal Reserve policy communications for further indications of sustained mortgage rate relief and its potential impact on housing affordability.
• Caution is advised regarding exposure to homebuilding equities and residential real estate-related assets, as the current slight easing in mortgage rates has not yet demonstrably reversed weak sales volumes or improved the deeply pessimistic homebuilder sentiment.
• Evaluate whether the recent rate moderation is sufficient to stimulate a meaningful recovery in housing demand, or if more substantial rate reductions and improvements in broader economic confidence are necessary to invigorate the market.