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Mortgage rates in the United States declined last week, with the average 30-year fixed-rate mortgage easing to around 6.17%, the lowest level in about a year. The drop follows the Federal Reserve's recent 25-basis-point rate cut, though further reductions are unlikely soon as Treasury yields have risen. The lower rates have encouraged refinancing activity but have not provided a major boost to home sales, which remain constrained by high property prices, a cooling labour market, and growing economic uncertainty.
The average 30-year fixed-rate mortgage in the United States has fallen to about 6.17%, its lowest level in a year, according to Freddie Mac. This marks a slight decrease from 6.19% recorded last week and a significant drop from 7.04% in January. In comparison, the same period last year saw mortgage rates averaging 6.72%. The steady decline over the past months has largely been influenced by the Federal Reserve's decision to gradually ease its monetary policy. Advertisement
The U.S. central bank recently lowered its benchmark overnight interest rate by 25 basis points, setting the new range at 3.75% to 4.00%. However, Federal Reserve Chair Jerome Powell noted that a further rate cut in the December meeting is not guaranteed. His comments tempered market expectations for continued monetary easing, which in turn pushed Treasury yields higher.
The yield on the benchmark 10-year U.S. Treasury note which strongly influences mortgage rates rose by about 2.3 basis points to nearly 4.095% this week, after registering its largest daily jump since early June. Since mortgage rates closely follow movements in Treasury yields, this increase limits the scope for further reductions in borrowing costs.
Despite the drop in mortgage rates, the overall housing market remains subdued. Higher home prices, a slowing job market, and broader economic uncertainty continue to weigh on demand. Data from the National Association of Realtors (NAR) showed that contracts to purchase previously owned homes declined by 0.9% in September compared with the same month last year, reflecting a persistent weakness in buyer activity.
At the same time, lower borrowing costs have encouraged a rise in refinancing activity. Homeowners holding older, higher-interest mortgages are taking advantage of the current rate levels to refinance and reduce their repayment burden. However, this improvement has not translated into a stronger sales recovery, as affordability challenges continue to limit new buyers' participation.
The mortgage market has been adjusting since the start of the year when rates exceeded 7%, driven by inflation concerns and uncertainty over the Fed's monetary stance. While the recent rate movement provides moderate relief to borrowers, analysts believe that sustained declines are unlikely unless there is a more significant easing of inflation or a notable slowdown in economic growth.
Source Reuters
5th Jun, 2025
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