U.S. Mortgage Rates Fall as Treasury Yields Decline

The average long-term mortgage rate in the U.S. decreased this week, following a drop in Treasury yields. This change came after a deal was announced to end the war with Iran.

The benchmark 30-year fixed-rate mortgage fell to 6.47% from 6.52% last week, according to Freddie Mac. A year ago, the rate was 6.81%.

Borrowing costs for 15-year fixed-rate mortgages, commonly used for refinancing, also decreased. The rate fell to 5.81% from 5.84% last week. One year ago, it was 5.96%, as per Freddie Mac.

Mortgage rates depend on several factors. These include the Federal Reserve’s policy decisions and bond market investors’ economic expectations. They typically follow the 10-year Treasury yield, which guides home loan pricing.

The Federal Reserve kept the benchmark interest rate unchanged as inflation remains above the 2% target. This decision came in new Fed Chair Kevin Warsh’s first meeting, succeeding Jerome Powell.

Some Fed policymakers are open to at least one interest rate hike this year.

Rates had been rising since the conflict with Iran began in late February, affecting oil flow from the Persian Gulf and increasing oil prices, inflation, bond yields, and mortgage rates.

This week, the U.S. and Iran reached a tentative agreement to end the conflict. This allowed Iran to open the Strait of Hormuz and freely sell oil. As a result, the yield on the 10-year Treasury note dropped from 4.53% to 4.44% since last week.

In late February, the average 30-year mortgage rate was just below 6% for the first time since late 2022. However, it hasn’t gone below that mark since then. Two weeks ago, it climbed to 6.53%, the highest since August 28.

While long-term mortgage rates are lower than they were a year ago, their rising trend keeps many potential homebuyers cautious. Sales of existing U.S. homes fell in the first three months of the year compared to last year, continuing a housing slump since 2022. Sales were stable in April but increased in May, marking the fastest pace since December.

The annual pace of existing-home sales remains around 4 million, below the historic norm of 5.2 million. Mortgage applications decreased recently, according to the latest Mortgage Bankers Association survey, but increased by 10.8% the week before. Pending home sales also rose last month, signaling potential market improvement in the second half of the year after a slow spring.