LOS ANGELES (AP) — The average interest rate on a 30-year mortgage rose this week, pushing up the cost of borrowing money for a home for the first time since late May.
Mortgage buyer Freddie Mac said Wednesday that interest rates rose to 6.95 percent from 6.86 percent last week. The average rate a year ago was 6.81 percent.
The increase follows four weeks of declines in the average interest rate, which has mostly hovered around 7% so far this year.
Rising interest rates could add hundreds of dollars a month to costs for borrowers. Rising mortgage rates have been a major drag on home sales, which have been sluggish since 2022.
Borrowing costs for 15-year fixed-rate mortgages, popular among homeowners looking to refinance, also rose this week, with the average rate rising to 6.25% from 6.16% last week. The average rate a year ago was 6.24%, according to Freddie Mac.
Mortgage rates depend on several factors, including how the bond market reacts to the Federal Reserve's interest rate policy and movements in the 10-year Treasury yield, which lenders use as a guide for pricing mortgages.
Yields have generally retreated since then after rising above 4.7% in late April on expectations that inflation was slowing and that the Fed would cut its key interest rate from its highest level in more than two decades.
Fed officials said inflation has moved closer to the Fed's 2 percent target in recent months and signaled they plan to cut the central bank's benchmark interest rate once this year.
But until the Fed starts to cut short-term rates, longer-term mortgage rates are unlikely to move from their current levels.
Most economists believe the Fed's first rate cut will come in September, with the possibility of one more cut by the end of the year. But Lisa Sturtevant, chief economist at Bright MLS, said mortgage rates could start to fall in the coming weeks if bond yields fall in anticipation of a Fed cut.
“Today's report is not what homebuyers were expecting, but it may actually mean interest rates start to fall sooner than expected,” she said.
Mortgage rates have fallen to record lows during the pandemic, sparking a home-buying boom and soaring home prices: Between 2019 and 2023, the national average sales price of existing homes in the U.S. increased by more than 43%. And despite a decline in sales this year, home prices hit an all-time high of $419,300 in May.
Rising mortgage costs and record high home prices have put many would-be home buyers off buying this spring, the hottest housing market of the year.
U.S. existing home sales fell for the third consecutive month in May and continued to decline in June.
Most economists expect the average interest rate on a 30-year mortgage to remain above 6% this year, but that's still double what it was just three years ago.
“We expect interest rates to decline modestly later this year, which should moderate price increases given the additional inventory, boding well for interested homebuyers,” said Sam Carter, chief economist at Freddie Mac.