Mortgage Rates Drop to 7.18% in Third Consecutive Weekly Decline

The average U.S. 30-year fixed mortgage rate fell to 7.18% this week, marking its third consecutive weekly decline as easing Treasury yields helped bring borrowing costs down from recent highs. However, rates remain well above year-ago levels, continuing to put pressure on home affordability.

According to mortgage buyer Freddie Mac, the average rate dropped from 7.24% last week. At the same time last year, it stood at 6.22%.

The average rate on a 15-year fixed mortgage also declined, falling to 6.57% from 6.60% the previous week. A year ago, it averaged 5.50%.

Although the latest reductions offer some relief to prospective buyers, mortgage costs remain elevated, limiting purchasing power and making it harder for many households to afford a home.

Treasury Yields Help Drive Mortgage Rates Lower

Mortgage rates are influenced by inflation, Federal Reserve policy and investors’ expectations for the economy. They generally move in line with the 10-year U.S. Treasury yield, which lenders use as a benchmark when pricing home loans.

Mortgage rates had been climbing since late February, when the U.S. war with Iran pushed oil prices higher and intensified inflation concerns. Increased volatility in the bond market also contributed to rising Treasury yields.

That trend has since begun to reverse. The 10-year Treasury yield has mostly declined over the past month after reaching its highest level since 2002.

By midday Thursday, the yield had fallen to 4.84%, its lowest level since early September. It had exceeded 5.30% in early October but remains above its 3.97% level before the war with Iran began.

The easing in Treasury yields has helped mortgage rates retreat from their recent peak.

Rates Remain Below Their Recent Peak but Above Year-Ago Levels

The average 30-year mortgage rate reached 7.40% early last month, its highest level in nearly three years. Three consecutive weekly declines have since brought it down to 7.18%.

However, the current rate remains nearly a full percentage point above the 5.98% recorded briefly in late February, the lowest level since late 2022.

That increase has significantly raised borrowing costs. For someone financing a $400,000 home loan, the higher rate has added an estimated $300 to $350 to monthly payments compared with borrowing at 5.98%, assuming the same loan amount and a comparable repayment structure.

Actual mortgage offers vary depending on a borrower’s credit history, income, loan terms and other factors.

High Borrowing Costs Continue to Weigh on Home Sales

Despite the recent improvement in mortgage rates, affordability remains a challenge for the U.S. housing market.

Higher interest rates increase monthly mortgage payments and reduce the amount buyers can afford to borrow. As a result, some prospective homeowners are delaying purchases while waiting for more favorable borrowing conditions.

The housing market has struggled since 2022, when mortgage rates began rising from pandemic-era lows. Sales of previously owned homes remained essentially flat last year, hovering near a 30-year low.

While the latest rate declines offer some relief, borrowing costs remain elevated compared with last year, limiting the potential for a quick recovery in home sales.

What the Decline Means for Homebuyers

The drop to 7.18% is an encouraging development for buyers who have been facing rising borrowing costs. Lower rates can reduce monthly payments and modestly improve purchasing power.

However, three consecutive weekly declines do not guarantee that mortgage rates will continue falling. Inflation, Treasury yields and broader economic developments will remain important factors in determining their direction.

For prospective buyers, the key question is whether this downward trend continues long enough to make homeownership more affordable.