Mortgage rates fell slightly this week to their first year-over-year decline in several years, and the June inflation report suggests rates could fall further.
Freddie Mac said Thursday that the typical 30-year fixed-rate mortgage fell to 6.89% from 6.95% last week. The slight decrease put interest rates at their lowest since late June.
The weekly rate fell below year-ago levels for the first time since 2021. The average mortgage rate for the same week in 2023 was 6.96%.
It's one of the latest signs that the housing market is increasingly favoring buyers. “There's more inventory on the market and a significant number of homes at reduced prices, which is an encouraging sign for potential buyers,” said Sam Carter, chief economist at Freddie Mac.
Further declines are possible: Freddie Mac's survey begins collecting data early Thursday morning and runs through late Wednesday night, meaning the Treasury market's reaction to the June Consumer Price Index data did not affect the reading.
Advertisement – Scroll to continue
The 10-year Treasury yield, a benchmark for mortgage rates, fell on Thursday to its lowest level since March 12, according to a 3 p.m. yield analysis from Dow Jones Market Data. Buyers would have more breathing room if rates return to late-March levels. The average rate on a 30-year fixed mortgage reported on March 28 was 6.79%, according to Freddie Mac data.
This week likely won't be the last that mortgage rates stay below year-ago levels, said Ralph McLaughlin, senior economist at Realtor.com. (News Corp, which owns Barron's, also owns Move, which owns Realtor.com.)
“With last week's jobs report and today's strong CPI, I think this trend is set to continue,” McLoughlin said. “Lower interest rates not only mean cheaper mortgages, but also more choice in the market.”
The Consumer Price Index numbers were a boon for construction stocks, which have struggled recently. The iShares US Home Construction ETF
Advertisement – Scroll to continue
Shares were up about 5.5% in late morning trading, the biggest percentage increase since Dec. 14, according to Dow Jones Market Data.
While lower interest rates are good news for would-be buyers with high home affordability, it may take more than June's tepid inflation to jump-start the housing market. Raymond James analyst Buck Horn recently told Barron's that mortgage rates in the low 6% range would be the “sweet spot” to spur buyers. Wedbush analyst Jay McCanless said that if mortgage rates fell to the high 5% or low 6% range, “you'd see a pretty good surge in demand.”
Shaina Mishkin can be reached at shaina.mishkin@dowjones.com.