Mortgage rates ticked down as of March 28, according to Freddie Mac, an encouraging sign for prospective homebuyers that a key obstacle to acquiring a house is easing.
The 30-year fixed rate mortgage averaged 6.79 percent, a drop from the previous week's reading of 6.87 percent. A year ago, the rate for a home loan was at 6.32 percent.
"Mortgage rates moved slightly lower this week, providing a bit more room in the budgets of some prospective homebuyers," Sam Khater, Freddie Mac's chief economist, said in a statement.
"We also are seeing encouraging data on existing home sales, which reflects improving inventory. Regardless, rates remain elevated near seven percent as markets watch for signs of cooling inflation, hoping that rates will come down further."
In February, existing home sales, which had a tough 2023, saw improvement, jumping by nearly 10 percent. High mortgage rates had kept sellers of this segment of the market subdued as homeowners were reluctant to put their properties with low rates on the market if that meant they would have to replace them with more expensive borrowing costs.
Read more: How To Sell Your Home
But mortgage rates hovering around 7 percent is still proving to be a block for homebuyers. Pending sales, a forward-looking indicator, showed only modest growth in February, according to the National Association of Realtors.
Mortgage applications, meanwhile, were down for the week ending March 22, according to the Mortgage Bankers Association (MBA), even though the 30-year fixed rate declined.
"That was not enough to stimulate borrower demand," Joel Kan, MBA's vice president and deputy chief economist, said this week.
How fast mortgage rates decline is unclear. Part of the reason that rates have been elevated is the Federal Reserve hiking rates to two-decade highs to battle inflation. While inflation has declined from its 9 percent peak in the summer of 2022, it is still above the central bank's target of 2 percent, with analysts suggesting that could mean rates may stay higher for longer.
Mortgage experts say that buyers are waiting for when rates will start to drop before they take the plunge into homeownership.
"With rates still hovering around 7 percent, many prospective homebuyers are taking a 'wait and see' approach until affordability improves and more listings hit the market," MBA President and CEO Bob Broeksmit said on Thursday.
Read more: Types of Mortgage Loans for Homebuyers
The Federal Reserve has signaled that it may slash borrowing costs this year, but the timeline for the cuts is unclear. Should that happen, it could lead to a drop in mortgage rates, something that lenders are expecting.
"MBA forecasts that mortgage rates will gradually move lower to around 6 percent by the end of the year, which should boost demand," Broeksmit said.
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