Borrowing costs for the most common home mortgage have dipped, but buyers expecting bigger drops could be in for a long wait.
The 30-year, fixed-rate mortgage averaged 6.81% as of Thursday, down from 6.84% last week, according to mortgage company Freddie Mac. A year ago at this time, the rates averaged 7.22%.
The 15-year, fixed-rate mortgage averaged 6.10%, up from 6.02% last week. A year ago, the 15-year mortgage averaged 6.56%.
“Rates have been relatively flat over the last few weeks as the market waits for more clarity on specific economic policies," Sam Khater, Freddie Mac’s chief economist, said in a statement.
The Federal Reserve cut interest rates by half a percentage point in September and followed that move in November with a cut of 25 basis points. With the reduction, the Fed's target for the federal funds rate is 4.5% to 4.75%.
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Still, mortgage rates remain elevated partly because there's a disconnect between the relationship of borrowing costs and the Federal Reserve cutting interest rates.
Daily rates rise
Mortgage rates closely track the 10-year Treasury rate, and the yield on those investments has increased recently as investors pull more money out of bonds and government treasuries and put it in stocks, according to Ken Johnson, an economist and the Walker family chair of real estate at the University of Mississippi.
Johnson said mortgage rates could drop below 6%, but that's not likely in the next year.
"People are hankering back to 2.5% interest rates, but those were record lows in my lifetime," he said in an interview. "We're not going to see that again."
In the long term, homebuyers should expect rates in the 5% and 6% range, according to Johnson. While that's much higher than what buyers were getting during the COVID-19 pandemic, the current rate averages are not historically high, he said.
Daily mortgage rates, typically more volatile than weekly averages, were up slightly as of Wednesday afternoon.
The 30-year, fixed-rate mortgage climbed 0.02% to 6.95%, according to Mortgage News Daily. That means homebuyers who took out $250,000 mortgages on Thursday afternoon would pay about $1,655 each month in principal and interest. The 15-year, fixed-rate mortgage average also increased 0.02% to 6.37%.
Despite the elevated mortgage rates, mortgage applications increased 6.3% from a week earlier, according to data from the Mortgage Bankers Association.
“With the growth in for-sale inventory and signs that the economy remains strong, buyers have remained in the market even though rates have increased recently," said Joel Kan, vice president and deputy chief economist for the trade group, in a statement.