U.S. mortgage rates dropped below 7 percent for the first time since August, according to new data released Thursday by Freddie Mac.
Mortgage rates have been falling steadily for the past seven weeks as inflation has eased, and the latest dip follows signs from the Federal Reserve on Wednesday that interest rates could come down next year.
“Given inflation continues to decelerate and the Federal Reserve Board’s current expectations that they will lower the federal funds target rate next year, we likely will see a gradual thawing of the housing market in the new year,” said Sam Khater, Freddie Mac’s chief economist, in a statement.
The average 30-year fixed-rate mortgage rate fell to 6.95 percent as of Thursday, according to Freddie Mac’s latest Primary Mortgage Market Survey. This time last year, the average rate was 6.31 percent.
The average 15-year fixed-rate mortgage ticked up to 6.38 percent from 6.29 percent last week, however, well above the average of 5.54 percent a year ago.
The Fed hiked borrowing rates to a 22-year high in July as part of its fight to bring down inflation, jacking up borrowing costs and sending mortgage rates soaring.
While Fed Chair Jerome Powell said Wednesday it would be “premature” to declare victory in the central bank’s fight against high prices, inflation has eased considerably from its 9 percent peak in June 2022 to 3.1 percent in November 2023.
The central bank is cautiously optimistic that it’s coming in for a soft landing — bringing down once-rampant inflation without triggering a recession — and may begin to cut rates next year.
“We are likely at or near the peak rate for this cycle,” Powell said Wednesday in a news conference after the Federal Open Markets Committee (FOMC) announced its decision to hold interest rates steady for the third consecutive meeting.
All but three of members of the FOMC forecast at least two rate cuts for next year from its current range of 5.25 to 5.5 percent, according to the panel’s economic projections released Wednesday.