The average interest rate on a 30-year U.S. mortgage approached 6% this week, the lowest level since early February 2023.
Mortgage purchaser Freddie Mac said Thursday that interest rates had fallen to 6.09 percent from 6.20 percent last week.
The average a year ago was 7.19%.
The last time the average rate was this low was on February 2, 2023.
Borrowing costs for 15-year fixed-rate mortgages, popular among homeowners looking to refinance their mortgages to lower interest rates, also fell this week.
The average interest rate fell to 5.15% from 5.27% last week.
A year ago, the average was 6.54 percent, according to Freddie Mac.
Mortgage rates are influenced by several factors, including how the bond market reacts to the Fed's interest rate policy decisions.
That could change the trajectory of the 10-year Treasury yield, which lenders use as a guide for pricing mortgages.
Signs of slowing inflation and a cooling labor market have raised expectations of a rate cut from the Federal Reserve, and interest rates have generally been easing since July, with the yield on the 10-year Treasury note falling.
The cut took effect on Wednesday, marking the first time the Federal Reserve cut its key interest rate in more than four years.
Fed officials also signaled they expect further rate cuts this year and in 2025 and 2026.
Lower interest rates should lead to lower mortgage borrowing costs in the long term.
Freddie Mac chief economist Sam Carter said the recent decline in interest rates should spur demand for refinancing and home purchase loans.
“While mortgage rates don't directly track the Federal Reserve's actions, this first rate cut in four years will have an impact on the housing market,” Carter said. “The decline in mortgage rates in recent weeks suggests this rate cut was largely priced in, but we expect rates to fall further and home activity to pick up.”
After the climb October was the highest in 23 years at 7.79%The average interest rate on a 30-year mortgage has been hovering around 7% for most of this year, more than double what it was just three years ago.
Rising mortgage rates can cost borrowers hundreds of dollars a month, deterring many would-be homebuyers and pushing the U.S. housing slump into its third year. U.S. existing home sales fell in August even as mortgage rates began to ease.
Still, as interest rates fall, more homeowners are applying to refinance their mortgages. Applications for refinance loans jumped 24% last week, according to the Mortgage Bankers Association.
Economists generally expect mortgage rates to stay near current levels for at least this year. Fannie Mae said this week that it expects rates on 30-year mortgages to average 6.2% in the October-December quarter, then fall to an average of 5.7% in the same quarter next year, down from 7.3% for the same period in 2023.
