Mortgage rate for a typical home loan falls to 6.8% — lowest since June

Mortgage rate for a typical home loan falls to 6.8% — lowest since June:

Mortgage rates have recently dropped after reaching their highest levels in over two decades this fall. The Mortgage Bankers Association reported that the interest rate on a typical fixed 30-year loan is now at 6.8%, the lowest since June, down from 7.1% a week earlier and a significant drop from 8% in October.

This decrease is attributed to easing inflation and the Federal Reserve’s decision to maintain its benchmark rate while forecasting possible cuts in the new year. Although mortgage rates do not always follow the Fed’s rate increases, they tend to track the yield on the 10-year U.S. Treasury note. Factors such as investors’ expectations for future inflation, global demand for Treasurys, and Fed policy influence rates on home loans.

According to the Fed’s projections, inflation is expected to decrease to 2.4% next year, aligning with its 2% target. Despite the reduced borrowing costs, potential homebuyers are not rushing into the market. Home prices remain unaffordable for most Americans, while owners who took out a mortgage at lower rates are reluctant to sell.

Nancy Vanden Houten, lead U.S. economist at Oxford Economics, noted that the supply of homes for sale remains scarce. While lower mortgage rates may encourage some sellers to enter the market, most homeowners with mortgages still have rates well below current market rates.

The National Association of Realtors reported a 0.8% increase in existing home sales in November, halting a five-month slide, but sales were still down 7.3% from a year ago. Lawrence Yun, the NAR’s chief economist, anticipates a positive turn as mortgage rates have dropped in recent weeks.

Looking ahead, property economist Thomas Ryan of Capital Economics projected a continuation of the positive trends in the struggling housing market, with further falls in mortgage rates expected in the future.

Historically, mortgage rates have a significant impact on the housing market, influencing home sales, affordability, and homeowners’ decisions to sell or refinance. The current decrease in mortgage rates may provide some relief for potential homebuyers, but the outlook for the housing market remains uncertain.

Author: Kate Gibson, Reporter for CBS MoneyWatch in New York.